Gold sees biggest daily drop since Dec. 2013

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Gold settled more than 2 percent lower on Thursday, while silver fell more than 6 percent and platinum more than 3 percent as the U.S. Federal Reserve signaled it was still on track to lift interest rates this year.

In Wednesday's policy statement, the Fed said the U.S. economy was expanding "at a solid pace", but reiterated it would be patient in deciding when to increase benchmark borrowing costs.

"The short-term reaction to the Federal Reserve is all of a sudden, people saying they could raise rates as soon as June. That's what's turned gold down here," said Bill O'Neill, co-founder of commodities investment firm LOGIC Advisors in Upper Saddle River, New Jersey.

O'Neill said June was when many had expected a rate hike but that before the Fed's statement on Wednesday there had been a recent shift of expectations to later in 2015 or even 2016.

The prospect of higher U.S. rates could encourage investors to pull back from the metal, a non-interest-bearing asset.

U.S. gold for April delivery closed down $31.30, at $1,255.90 an ounce. fell to a two-week low of $1,251.86 an ounce and was last down 2.2 percent at $1,257.

Gartman's dollar & gold trade
Gartman's dollar & gold trade

The fall triggered automatic sell orders in precious markets, with the strength of the downward move surprising traders.

"The U.S. is still the driver of global growth, the Fed is the only bank considering any sort of tightening, and that is going to weigh on gold," Mitsubishi Corp strategist Jonathan Butler said.

The Fed said it would take "financial and international developments" into account when determining when to raise rates, referencing global markets for the first time since January 2013.

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The dollar rose 0.3 percent against a basket of currencies, remaining close to an 11-year peak reached last week, while global equity markets eased.

Spot silver dropped 6.4 percent to $16.81 an ounce. Palladium fell 2.8 percent to $769.85 an ounce and platinum was down 3.2 percent at $1,213.50 an ounce.

Investors will watch U.S. gross domestic product data on Friday for more clues on the strength of the economy.

"It's possible we can see a bit more weakness with the U.S. GDP coming out Friday," Macquarie analyst Matthew Turner said.

Some economists say a drop in U.S. business investment spending for the fourth straight month in December suggested a risk that fourth-quarter economic growth could fall short of forecasts that mostly hover around a 3.0 percent annual pace.