Gold settles about 1% lower on Fed, firm US dollar

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Gold settled lower on Thursday after posting its biggest one-day fall since late January in the previous session, reacting to comments from Federal Reserve head Janet Yellen suggesting U.S. interest rates could rise sooner than expected.

The dollar rose sharply and short-term U.S. bond yields jumped by the most in almost three years after Yellen said the bank may end its bond-buying program this autumn, and could start to raise interest rates around six months later.

(Read more: Yellen indicatesrate hike sooner than expected)

Chart: Precious Metals

Record low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, were a key factor driving the precious metal to all-time highs in recent years.

U.S. gold futures for April delivery settled 0.8 percent lower at $1,330.50 an ounce, while spot gold was flat around $1,330 an ounce.

Earlier, it dropped to $1,320.90 an ounce, its lowest since Feb. 28, after data showed U.S. unemployment claims rose modestly, with the four week average hitting a four month low.

Concerns that a confrontation over Ukraine could escalate battered stock markets and sent gold to six-month highs at $1,391.76 an ounce earlier this month. Russia's moves to annex the Black Sea peninsula of Crimea has turned a stand-off with Europe and the United States into the biggest crisis in East-West relations since the Cold War.

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