Gold fell about 0.5 percent on Monday as a Wall Street rally decreased the need for safe-haven buying, with investors awaiting this week's US Federal Reserve meeting for signals on the latest plans for its monetary stimulus. Recent better-than-expected US retail sales and jobs data fuelled speculation that the Fed could scale back its $85 billion monthly mortgage-bond buyback at the end of its two-day policy meeting on Wednesday.
The S&P 500 stock index rose 1 percent on traders' hopes that the Fed will reinforce its commitment to support the economic recovery. "With very few clear choices left for monetary growth, US equities continue to show resilience. This has kept the bear alive in the precious metals market while physical demand remains firm," said Carlos Perez-Santalla at brokerage Marex Spectron.
Spot gold was down 0.4 percent to $1,384.16 an ounce by 12:45 pm EDT (1645 GMT). On Friday, bullion closed up about 0.5 percent for the week, helped by strong demand for coins and bars, a pullback in US stocks and escalating tensions in the Middle East. US Comex gold for August delivery fell $3.80 to $1,383.80, with trading volume at less than 60,000 lots versus its 30-day average of 217,000, preliminary Reuters data showed.
Demand in Asia has cooled from peak levels seen after the mid-April sell-off in gold, dealers said. Bullion is down 17 percent for the year to date after 12 years of annual gains. Indian purchases of gold have fallen since an import duty increased earlier this month. The government is trying to narrow its current account deficit by reducing gold imports.
Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking Group (ANZ), said volumes to India have fallen significantly in the past two weeks. Markets have been volatile since Fed Chairman Ben Bernanke said last month the bank could scale back its stimulus measures. Since then Fed officials have given conflicting signals.
"People are looking for more clarity - or not, as the case may be - on whether the Fed starts to ease off the Quantitative Easing bandwagon," SocGen analyst Robin Bhar said. Most economists expect the Fed to scale back the size of its bond purchases by year end. Any slow down in the bond-buying program, which could lead to higher interest rates, is seen as unfavourable for bullion which produces zero yield. It could also prompt investors to buy other assets such as equities or treasuries. Among other precious metals, silver fell 0.9 percent to $21.84 an ounce. Platinum was down 0.7 percent to $1,435.48 and palladium dropped 2.1 percent to $714.