Gold prices fell 1 percent on Wednesday to $1,566 an ounce after Federal Reserve minutes showed some policymakers expected to slow the pace of bond purchases and to discontinue them by year end. Shortly after, a European Commission report showed Cyprus agreed to sell excess gold reserves to raise around 400 million euros to help finance its part of its bailout.
Both announcements battered gold, which failed to receive follow-through buying on this week's advance. "I think gold was responding to a little bit of both (news items)," said metals trader David Lee at Heraeus Precious Metals Management in New York.
Spot gold was off 1.18 percent at $1,566 an ounce at 12:16 pm (1616 GMT). US gold futures for April delivery lost $16.70 an ounce, or 1.03 percent, to $1,569.90 an ounce. According to an early release of minutes of the Fed's March meeting, a few US Federal Reserve policymakers expected to taper the pace of asset purchases by midyear and end them later this year. Several others expected to slow the pace a bit later and halt the quantitative easing program by year-end.
New York gold traders were not alarmed by the size of Cyprus' purchase, but the announcement at a time when gold was already struggling to reach $1,600 gave room for bearish investors to reassert themselves. "Funds are starting to think about their gold positions and there was a lack of follow through on the short covering the other day. It didn't break back above the key technical $1,600 level to relaunch it on an uptrend," said Heraeus' Lee.
The precious metal traded in its widest weekly range since mid-February last week, sliding to a 10-month low at $1,539.74, as funds favoured other assets such as equities, before rebounding sharply on the back of weak US jobs data. Goldman Sachs cut its 2013 gold price forecast for the second time in six weeks, to $1,545 an ounce from $1,610, a day after UBS cut back its price view for this year. It is targeting a gold price of $1,450 an ounce by year-end, it said.
"With our economists expecting few ramifications from Cyprus and that the recent US slowdown will not derail the faster recovery they forecast in (the second half of 2013), we believe a sharp rebound in gold prices is unlikely," Goldman said in a report. The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reported a further outflow from its gold holdings on Tuesday of just under five tonnes, bringing its outflow for the year to more than 150 tonnes.
Gold-backed ETFs tracked by Reuters have recorded outflows of 195 tonnes so far this year. Silver slid 1.29 percent at $27.57 an ounce. The metal rallied 2.5 percent on Tuesday, its biggest one-day rise since mid-February. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, pulled back from last week's eight-month high as silver outperformed. An ounce of gold now costs 56.8 ounces of silver, down from 57.9 on Friday. Spot palladium trimmed losses to 0.83 percent at $722.50 an ounce, having fallen as low as $702.97. Spot platinum was down 1.39 percent at $1,525.50 an ounce.