Gold prices fell more than 1 percent to fresh eight-month lows on Wednesday as the dollar rallied and investors worried about forecasts that the U.S. Federal Reserve may be readying for faster pace of interest rate hikes than previously projected.
While the Fed's renewed pledge in its policy statement to keep interest rates near zero for a "considerable time" boosted the dollar and U.S. equities, bullion reversed small earlier gains after the Fed forecasts signaled earlier-than-expected increases in interest rates next year.
"The market seems to be focused on the so-called 'dots' where they look at the FOMC's interest rate forecast. That's what the market is looking at despite a pretty even, perhaps dovish result and presser," said Tai Wong, director, metals trading at BMO Capital Markets in New York.
For the end of next year, the Fed's median projection was 1.375 percent, compared to 1.125 percent in June, while the end-2016 projection moved up to 2.875 percent from 2.50 percent. For 2017, the median stood at 3.75 percent - the level officials see as neither stimulative nor restrictive.
Trading was choppy after the statement and throughout Fed Chair Janet Yellen's news conference, but heavy selling "smacked" futures to fresh lows at 3:45 p.m. EDT (1945 GMT) not seen since January, Wong said.
Ending two straight days of gains, spot gold was down 1.0 percent at $1,223.78 an ounce by 4:46 p.m. EDT (2046 GMT).
Earlier in the session, prices had pierced its previous 8-month low hit on Monday to trade as low as $1,221.46 per ounce.
U.S. COMEX gold futures for December delivery settled at $1,235.9 an ounce, almost unchanged from Tuesday's close at $1,236.70.
"The FOMC minutes made it clear the trend for higher rates are very much in play," said Bill O'Neill, a partner at commodities investment firm LOGIC Advisors in New Jersey.
Further gains in gold were limited after the Labor Department said earlier U.S. consumer prices fell for the first time in nearly 1-1/2 years in August and underlying inflation pressures were muted.
Bearish investor sentiment was reflected in the flows of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. The fund's holdings fell 4.18 tonnes to 784.22 tonnes on Tuesday.
Among other precious metals, silver was down 1.23 percent at $18.57 an ounce. Platinum dropped 0.84 percent to $1,356.25 an ounce, while palladium also fell 0.8 percent to $838.25.50.
(By Josephine Mason and Frank Tang; Additional reporting by Clara Denina in London and A. Ananthalakshmi in Singapore; Editing by Michael Urquhart, Susan Thomas, Andrew Hay and Diane Craft)