(Reuters) – On Wednesday, gold dropped to a three-week low after remarks from a Federal Reserve official upturned the outlook that the U.S. central bank might begin to rein-in its stimulus program as soon as next month.
Bullion has lost about 25% of its value this year, after 12 yearly gains, on fears the Fed will curb its $85 billion monthly bond purchases on clues of economic recovery.
The tapering of U.S. central bank could help a higher interest rate environment that weakens gold’s attraction.
Spot gold fell 0.2% to reach $1,278.64 an ounce at 1020 GMT, when hitting its lowest level since July 17 at $1,272.64 earlier in the session.
December U.S. gold futures declined $4.10 to reach $1,278.30 an ounce.
The London A.M. fix is $1,275.50.
Natixis analyst Nic Brown stated “It does very much look as though the Fed is keen to go ahead with its tapering, perhaps starting as soon as September and that has added a little negative sentiment to the gold market and for that we think there is more downside risk in the near term,”
The dollar is stable around a one-week low hit earlier, whereas European shares decreases.
Benchmark U.S. Treasury yields strengthened around 2.66%. Returns from U.S. bonds are carefully observed by the gold market, given that the yellow metal pays no interest, as these are seen as a key indicator of what the action that the Fed will take in September, analysts said.
On Tuesday Chicago Fed President Charles Evans said the U.S. central bank will possibly reduce its quantitative easing (QE) program later this year and might do so as early as September, relying on economic data.
Evans was the third Fed official in two days that recommends a reduction in September.
Fed policymakers, who their votes last week was to continue its bonds-buying, the next meeting is on September 17 and 18 to discuss policy.
Dealers said, Shanghai gold futures fell 1.5% on lower demand.
Chinese net gold imports from key supplier Hong Kong dropped around 4% in June from the prior month, while purchases held over 100 tons.