Singapore: Gold was trading near four-month low on Thursday after its biggest drop in seven weeks in the previous session, hurt by fears the US Federal Reserve could start trimming its commodity-friendly monetary stimulus in the next few months.
Minutes of the Fed's October policy meeting released on Wednesday showed that officials felt they could start scaling back the US central bank's USD 85 billion in monthly asset purchases at one of the next few meetings, depending on economic growth.
Spot gold had edged up 0.2 percent to USD 1,245.56 an ounce by 0747 GMT but was not too far from a four-month low of USD 1,240.69 hit on Wednesday, when both gold and silver fell 2.5 percent.
"The market believes that 'tapering' may now occur sooner rather than later. So there is a shift in assets to the dollar rather than gold," said Song Seng Wun, an economist at CIMB.
The dollar hit its highest in nearly a week against a basket of major currencies.
Data on Wednesday supported the idea that Fed tapering could begin soon, as a gauge of US consumer spending rose more than expected in October.
"If data continues to support the recovery in manufacturing and service sector, then we might find that gold prices may come under pressure," said CIMB's Song.
Recent US economic data is looking better and a solid jobs report for November would increase the likelihood that the Fed would start to scale back bond buying at its meeting next month, St. Louis Fed President James Bullard said.
Gold gained considerably from the US central bank's quantitative easing measures, hitting an all-time high of USD 1,920 an ounce in 2011.
But a recovery in the US economy this year has prompted the Fed to consider rolling back its stimulus and bullion has lost about a quarter of its value so far in 2013.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 2.70 tonnes to 860.31 tonnes on Wednesday, hitting a four-and-a-half-year low.
Physical demand picked up due to the lower price levels, but not to a great extent, according to dealers.