London: Prices of gold tumbled on Thursday after the Federal Reserve's latest policy outlook was deemed less dovish than some had expected, lifting the dollar index to two-week high.
The metals had gained ground over the past two weeks, with gold hitting a five-week high on Tuesday, on expectations that the Fed would stay very wary on the U.S. growth outlook.
But it slumped after the U.S. central bank did not sound quite as alarmed about the state of the economy as some had anticipated after its latest policy meeting, although it kept its $85 billion-a-month stimulus plan intact.
"The market was long pre-announcement, and the Fed's wording brought along some stop selling," Afshin Nabavi, head of trading at Switzerland's MKS, said. "The market I believe was expecting a more dovish tone."
Spot gold was down 1.3 percent at USD 1,325.16 an ounce by 1432 GMT, after falling to its lowest since Oct. 22 at USD 1,321.34. U.S. gold futures for December delivery were down USD 24.30 an ounce at USD 1,325.00.
Silver underperformed to fall 2.9 percent at USD 21.99 an ounce, putting it on track for its biggest one-day loss in a month. It earlier hit a low of USD 21.81.
Gold is down more than 20 percent this year on expectations the Fed is set to scale back monetary stimulus, but a budget battle in Washington and weak economic data has raised questions over whether it would begin that process this year.
"The market was expecting that in light of the government shutdown and weaker data there was going to be a supportive statement... but it didn't move in that direction," Macquarie analyst Matthew Turner said.
CHINESE BUYING SOFT
Bullion was also undermined by slow physical buying in Asia, especially China.
Prices on the Shanghai Gold Exchange have trended lower than global prices due to fears of a cash crunch.
China bought more than 100 tonnes of gold from Hong Kong for a fifth straight month in September as demand for bullion bars and jewellery stayed strong, keeping it on track to overtake India as the world's biggest gold consumer this year.
Spot platinum was down 1.4 percent at USD 1,449.50 an ounce, while spot palladium fell 0.7 percent to USD 737.97 an ounce.
South Africa's AMCU union declared a wage dispute on Thursday with platinum producer Lonmin , but said it remained in talks with the company.
Plentiful stockpiles of the metal and a soft demand picture have prevented platinum prices from rising on the back of strike action so far this year.
"If we have a strike action of, let's say, a month, and we lose 100,000 ounces (of production), I think the market will sit up and take notice," Deutsche Bank analyst Grant Sporre said this week.
"But if it lasts a week and we lose 20,000 ounces, that's not enough to tighten up the market," he said. "It has to be a long, protracted strike action, perhaps a month-long strike, to be significant."