Gold falls, heads for weakest week since June on Fed, Syria

Source: World Gold Council

Gold fell to a five-week low on Friday, heading for its weakest week in two months on prospects the United States would curb its stimulus soon and as fears of a U.S.-led military attack on Syria receded.

The United States and Russia started talks on Thursday, trying to flesh out a Moscow plan to dispose of Syrian President Bashar Assad's chemical weapons.

Spot gold hit its weakest since August 8 at $1,304.56 earlier and is on track to record its biggest weekly drop since June 21 at 5.3 percent so far. It was last quoted at $1,311 an ounce, down 0.7 percent. As technical support at 100-and 50-day moving averages has been broken, traders said $1,307 should now provide a floor, but a consistent fall through that level would trigger further losses to August's lows of $1,273.

U.S. gold futures for December delivery settled $22.00 lower at $1,308.60.

"Gold's drop at the beginning of the week was mostly due to the waning safe-haven buying after the diplomatic action in Syria," MKS SA Senior Vice President Bernard Sin said.

"But now it's all about the Fed tapering talks and expectations that the central bank will start, albeit slowly, as soon as this month."

The Federal Reserve may announce a cut in its $85 billion monthly bond purchases at the end of its two-day meeting on Sept. 18.

Gold lost 19 percent this year after the Fed signaled it would start reining in nearly five years of quantitative easing that weighed the dollar down and encouraged investors to buy hard and non-interest rate bearing assets like gold.

Gold came under further pressure in earlier trading from a firmer dollar after a Japanese newspaper report that Lawrence Summers would soon be named to head the Federal Reserve.

But it cut some losses after weaker-than-expected U.S. economic data indicating slow economic growth in the third quarter, suggested that the Fed could only slowly start its tapering, analysts said.

"If the Fed defers the decision on tapering we could well see gold take back some of the ground that has lost in the last few days," Mitsubishi analyst Jonathan Butler said.

—By Reuters.