London - Gold fell 1 percent on Wednesday as investors awaited the release of minutes of the Federal Reserve's last policy meeting later in the day, hoping for clues on when it will trim its monetary stimulus programme.
Persistent weakness in physical demand meant the metal failed to benefit from a dovish tone to Fed officials' comments on Tuesday, traders said.
In a speech that echoed comments by his nominated successor, Janet Yellen, Fed chairman Ben Bernanke said that while the economy had made significant progress, it was still far from where officials wanted it to be.
In recent years ultra-loose monetary policy has been a key factor driving gold prices higher as it keeps interest rates nailed down while stoking inflation fears.
But this year, the metal is down nearly 25 percent on expectations that policy may be tightened.
Spot gold hit a one-month low of $1,260.39 on Wednesday, and as of 15:18 SA time it was down 0.9 percent at $1,263.69 an ounce.
US gold futures for December delivery were down $10.70 an ounce at $1,262.80 an ounce.
“The key issue today is the FOMC minutes and investors will look to see if there is any surprise in the announcement, although I doubt it,” Sharps Pixley CEO Ross Norman said.
“There is nothing really new in terms of macro drivers at the moment ...the tapering discussion continues and prices may remain under pressure until the Fed clarify the timing of it.”
The dollar was marginally lower against a basket of currencies ahead of the minutes for the October 29-30 Fed meeting, due for release at 21:00 SA time.
Bernanke also said that the Fed will maintain ultra-easy monetary policy for as long as needed and will only begin to taper bond buying once it is assured that labour market improvements would continue.
The speech supported expectations that the Fed would not immediately roll back its $85 billion in monthly bond purchases.
The US central bank may need to wait until next year, possibly until March, before beginning to wind down its stimulus program, Chicago Fed President Charles Evans said.
DEMAND LANGUISHES
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.
Physical demand from China and other Asian countries has failed to pick up below the $1,300 level as consumers looked to have satisfied their needs when prices fell earlier in the year.
“We are now in the heart of the traditional season for buying gold in main Asian markets but demand remains remarkably light and that's another element of support missing for gold at the moment,” Norman said.
Output from the world's gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year's 24 percent plunge in prices.
Silver were down 0.1 percent at $20.31 an ounce, having touched a three-month low of $20.46 on Tuesday.
Spot platinum was down 0.5 percent to $1,405.24 an ounce, while spot palladium was down 0.5 percent at $714.75 an ounce. - Reuters