Gold fell 2.5 percent to a four-month low on Wednesday after minutes of the Federal Reserve's October meeting showed U.S. central bankers could start scaling back monetary stimulus at one of their next few meetings.
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Bullion slid below $1,250 an ounce for the first time since July 10 and notched its biggest one-day drop since Oct. 1.
Gold, which has been ultra-sensitive to the prospect of the Fed scaling back its quantitative easing, sharply underperformed other assets after the news, with U.S. equities and Treasuries prices both down around 0.5 percent, while the dollar rose about 0.5 percent.
The pace of trading was frantic in the gold futures market, with almost 17,000 U.S. Comex December contracts traded. Total turnover for the day was at 240,000 contracts, on track to hit a two-month high.
Minutes of the Fed's October policy meeting showed that Fed officials felt they could decide to start scaling back the U.S. central bank's massive asset purchase program at one of its next few meetings, provided this was warranted by economic growth.
"The minutes bring the risk of Fed tapering back to the forefront, even though many policymakers had said in public that it would not happen in the near future," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC.
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"Tapering is still definitely on the table," McGhee said.
Spot gold was down 2.4 percent at $1,244.31 an ounce by 3:36 p.m. EST (2036 GMT), having dropped to a four-month low of $1,240.69.
Prior to the Fed minutes, December gold settled down $15.50 an ounce at $1,258 an ounce.
A sudden drop in price earlier in the session appeared to rattle bullion investors. Within a minute's time at 6:27 a.m. EST, gold tumbled more than $11, or nearly 1 percent, to $1,258 an ounce, triggering two consecutive 10-second momentary pauses aiming to prevent cascading stop-loss orders, CME Group said.
On Wednesday, St. Louis Fed President James Bullard said recent U.S. economic data is looking better and a solid jobs report for November would increase the likelihood that the U.S. central bank would start to scale back bond buying at its meeting next month.
"The choppiness in gold is going to continue until we get a definitive answer about whether the Fed is going to taper," said Thomas Capalbo, a precious metals broker at New York futures brokerage Newedge.
DEMAND LANGUISHES, SUPPLY UP
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded, fell 1.5 tonnes to 863.01 tonnes on Tuesday, their lowest since February 2009.
On the supply side, output from the world's gold mines is set to hit record highs this year.
Silver was down 2.4 percent at $19.83 an ounce, having touched a three-month low of $19.76.
Platinum fell 1.6 percent to $1,389 an ounce, having hit a one-month low at $1,388, while palladium dropped 1.4 percent to $708.25 an ounce.
(By Frank Tang and Clara Denina)