Spot gold trimmed earlier losses and U.S futures settled down modestly on Wednesday after the Federal Reserve announced that it would stay on course with its plan to trim its bond-buying program.
As Wall Street had expected, the central bank cut its monthly asset purchases to $25 billion from $35 billion, leaving it on course to end its quantitative easing program this fall. It also left its short-term interest rate target near zero and expressed only tepid encouragement about growth.
The metal was headed for a 2.2-percent monthly loss after a gain of around 6 percent in June, when international political tensions prompted investors to seek gold, often perceived as an insurance against risk.
Earlier, data showed U.S. gross domestic product grew at a 4.0 percent annual rate as activity picked up broadly after shrinking at a revised 2.1 percent pace in the first quarter. Economists had forecast the economy growing at a 3.0 percent rate.
The dollar extended earlier gains to trade at 10-1/2 month highs against a basket of currencies, buoyed by strong data and as investors awaited a statement from the Federal Reserve's two-day policy meeting, due later on Wednesday.
The surprise improvement in economic growth overshadowed a weak report on the labor market. U.S. companies hired 218,000 workers in July, below projections for a 230,000 jobs gain.
The next big focus will be the release of July non-farm payrolls data on Friday, which is expected to further signal the world's biggest economy is on a steady recovery path.
Recent strong economic data had raised speculation that the U.S. central bank could raise rates sooner than expected, which would encourage investors to withdraw money from non-interest-bearing assets such as gold.
"It should be priced in that the Fed is going to continue to reduce the volume of monthly bond purchases, but some market participants would like to get a little hint about the direction of interest rates," Quantitative Commodity Research director Peter Fertig said.
Prices have remained in a $160 per ounce range since the start of the year, mostly trading between $1,250 and $1,320.
"We keep seeing rallies fade and then some good buying on the dips, meaning the prices are extremely elastic and volatility is low," Sharps Pixley CEO Ross Norman said.
"A similar situation occurred in the 1990s. But those years were followed by the 2000s, which were characterised by a series of new initiatives, including the launch of exchange-traded funds and the liberalisation of the Chinese market. That brought around a sevenfold increase in the gold price," he added. "I don't see that happening now."
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