Spot gold slides after Fed; futures log slight loss

Source: World Gold Council

Spot gold prices extended earlier losses on Wednesday after the minutes from the Federal Reserve's latest policy meeting showed the central bank was surprised by how quickly the U.S. labor market is healing.

Initially flat, spot gold fell 0.5 percent to $1,289 an ounce after the announcement, while U.S. gold futures for December delivery settled $1.50 lower $1,295.20 an ounce earlier.

``Labor market conditions had moved noticeably closer to those viewed as normal in the longer run,'' according to the minutes of the central bank's July 29-30 meeting, which were released on Wednesday.

Policymakers ``generally agreed'' that improvements in the labor market over the last year had been ``greater than expected,'' according to the minutes.

Read MoreFed minutes: Some want 'relatively prompt' rate hike

The metal has traded within a range of just over $42 so far in August, its narrowest monthly range in five years.

Gold / US Dollar Spot

"In the last 24 hours we had good U.S. housing data and that's one insight into the strength of the world's largest economy, which also seems to be the reason why the dollar became a lot stronger against the other currencies," Societe Generale analyst Robin Bhar said.

"The next highlight will be the minutes and then the next few days listening to what comes out of Jackson Hole."

The dollar reached an 11-month peak against the euro and a basket of major currencies on Wednesday, buoyed by optimism over the health of the U.S. economy after strong housing data on Tuesday.

Federal Reserve Chair Janet Yellen will address an annual gathering of policymakers in Jackson Hole, Wyoming, on Friday.

Gold is highly sensitive to the outlook for U.S. economic policy, after benefiting strongly from ultra-loose monetary conditions in the wake of the financial crisis. Any sign the Fed is reining in that policy more quickly than expected could hurt prices.

"A clearer and stronger policy message from the Fed is needed to shift gold price expectations materially from here," UBS said in a note on Wednesday.

"Given the general trend in macroeconomic data and the seeming complacency of market participants right now, the greater risk is for a hawkish surprise."

—By Reuters with CNBC