Gold fell more than 1 percent on Tuesday to settle at $1,277 after Fed chief Ben Bernanke said the U.S. central bank still expects to start scaling back its massive bond purchase program later this year, smashing hopes of a possible extension of monetary stimulus.
Bullion briefly rose above the $1,300 mark after Bernanke said in a prepared statement for his testimony before congressional committees that he left open the option of changing stimulus exit plans if the economic outlook shifted.
The metal later fell after Bernanke reiterated that the Fed would likely reduce its $85 billion monthly buyback of mortgage-backed securities, known as quantitative easing, later in 2013 and halt them altogether by mid-2014.
"The market is woken up to the fact that we are seeing the end of tapering and the potential end of QE, and that takes the brush off the rose," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Gold prices would only rally if there was an increase or at least a maintenance of current bond buybacks, but none of the scenarios is likely after Bernanke's comment, McGhee said.
Spot gold fell 1.2 percent to $1,276.66 an ounce, sharply below a session high at $1,300.16 an ounce. It marks the first time gold rose above the $1,300 level in three weeks.
U.S. gold futures for August delivery slipped $12.90 to $1,277 an ounce.
Gold has fallen nearly 25 percent this year, hurt by fears the Fed is set to curb its bond buybacks, which have driven gold to record highs by pressuring long-term interest rates while stoking fears about inflation.
(Read more: Three reasons why the gold rally will fail)
Fed policymakers earlier this year indicated that the U.S. central bank could rein in its $85 billion monthly bond-buying program, but Bernanke's comment last week about the need to keep a stimulative monetary policy triggered a gold rally.