Gold settled lower at $1,383 on Monday as a Wall Street rally decreased the need for safe-haven buying, with investors awaiting this week's U.S. Federal Reserve meeting for signals on the latest plans for its monetary stimulus.
Recent better-than-expected U.S. retail sales and jobs data fueled speculation that the Fed could scale back its $85 billion monthly mortgage-bond buyback at the end of its two-day policy meeting on Wednesday.
The S&P 500 stock index rose nearly 1 percent on traders' hopes that the Fed will reinforce its commitment to support the economic recovery.
"With very few clear choices left for monetary growth, U.S. equities continue to show resilience. This has kept the bear alive in the precious metals market while physical demand remains firm," said Carlos Perez-Santalla at brokerage Marex Spectron.
Spot gold was down 0.5 percent to $1,383 an ounce. On Friday, bullion closed up about 0.5 percent for the week, helped by strong demand for coins and bars, a pullback in U.S. stocks and escalating tensions in the Middle East.
U.S. gold futures fell $4.50 to end the day at $1,383.10 per ounce. Demand in Asia has cooled from peak levels seen after the mid-April sell-off in gold, dealers said. Bullion is down 17 percent for the year to date after 12 years of annual gains.
Indian purchases of gold have fallen since an import duty increased earlier this month. The government is trying to narrow its current account deficit by reducing gold imports. Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking Group (ANZ), said volumes to India have fallen significantly in the past two weeks.
All Eyes On Fed
Markets have been volatile since Fed Chairman Ben Bernanke said last month the bank could scale back its stimulus measures. Since then Fed officials have given conflicting signals.
"People are looking for more clarity—or not, as the case may be—on whether the Fed starts to ease off the Quantitative Easing bandwagon," SocGen analyst Robin Bhar said. Most economists expect the Fed to scale back the size of its bond purchases by year end.
Any slow down in the bond-buying program, which could lead to higher interest rates, is seen as unfavourable for bullion which produces zero yield. It could also prompt investors to buy other assets such as equities or treasuries.