Gold settles below $1,230; worst day since early January

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Gold settled at its lowest level in more than eight months Thursday as the dollar index jumped to a four-year peak after the Federal Reserve signaled that a faster hike in U.S. interest rates might be on the horizon.

The Fed on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time", but also indicated it could raise borrowing costs faster than expected when it starts moving.

``The dollar did its job again and gold wiped out the entire eight months' gains and we are now back where we were at the beginning of the year,'' Sharps Pixley CEO Ross Norman said.

``Even though the fourth quarter is the traditional strong period for physical demand, I don't see the market going significantly higher or lower ... I wouldn't be surprised to see prices around $1,230/$1,240 at the end of the year.''

U.S. gold futures closed 0.7 percent lower at $1,226.90 an ounce, its lowest settlement since January 8.

Meanwhile, spot gold was last up 0.3 percent to $1,226 an ounce, having lost about 1 percent in the previous session.

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"Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks," said MKS Group dealer Jason Cerisola.

The U.S. dollar had been gaining in strength even before the Fed statement, as speculation rose that the U.S. central bank would raise rates sooner than the market consensus of mid-2015.

Before Thursday, gold had dropped for four sessions out of six on worries that any increase in rates would dim the appeal of non-interest-bearing assets such as bullion.

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In other precious metals, silver futures settled at $18.517 an ounce, its lowest since August 24, 2010.

—By Reuters with CNBC