Gold sank almost 2 percent to two-week lows on Thursday as upbeat U.S. economic data heightened expectations the U.S. Federal Reserve may soon rein in its massive stimulus program that has bolstered bullion prices.
The European Central Bank's pledge to keep interest rates low reversed early gains in bullion, while a lack of progress in any U.S. military action against Syria further weighed on the precious metal's safe-haven status.
Selling in gold accelerated and pushed prices down to $1,364.91 an ounce, their lowest level since Aug. 22, after data showed growth in the U.S. services sector accelerated in August to its fastest pace in almost eight years.
That came on top of news that private employers added 176,000 jobs in August and new claims for jobless benefits fell to a near five-year low last week.
Those numbers suggested the labor market - a key for Fed decisions - is in a slow-but-steady recovery and the central bank may be convinced to trim its monthly purchases of $85 billion in Treasuries and mortgage-backed securities.
Official U.S. jobs data for August is due on Friday.
Spot gold was down 1.6 percent at $1,368.01 an ounce, adding to Wednesday's 1.5 percent drop.
U.S. gold futures for December delivery settled down $17, or 1.2 percent, at $1,373 an ounce.
"I think gold really took a hit on today's economic data," said David Lee, vice president of trading at Heraeus Precious Metals Management.
"The possibility of Fed stimulus tapering starting in September, or even by December, is really a concern now with the better services sector and preliminary jobs reading for August."
This year's 15 percent drop in gold has been driven largely by speculation the Fed will start reducing its stimulus program with an announcement at its Sept 17-18 meeting.
"Everyone is trying to pre-judge what the Fed might do," Citi analyst David Wilson said. "So, if the employment numbers are better than expected it will heighten the sense that tapering will be sooner rather than later, and the reverse if the data's below expectations."
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