Gold prices fell more than 1 percent in Europe on Thursday, failing to sustain gains made after the Federal Reserve unveiled a fresh round of bond purchases, as investors switched focus to the prospect of a looming U.S. fiscal crisis.

The precious metal hit a two-week high late on Wednesday after the Fed said it planned to buy $45 billion in longer-term Treasuries each month on top of the $40 billion monthly purchase of mortgage-backed securities it announced in September.

But Fed chairman Ben Bernanke also warned that monetary policy would not be enough to offset the damage to growth if talks to close the fiscal deficit in Washington failed, triggering mandatory tax increases and spending cuts.

Gold quickly dropped in line with other markets as the new stimulus measures were overshadowed by concerns that the budget talks might fail to head off what would be a crushing blow to growth. Traders cashed in gains ahead of the year-end, with the statement containing few surprises to justify a stronger rise.

Spot gold was down 1.3 percent at $1,689 an ounce, while U.S. gold futures were down 1.2 percent at $1,696.

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— Reuters contributed to this report