Gold slid 1.3 percent to its lowest in two months on Thursday, extending losses to a fifth consecutive session, as fears about an early interest rate hike by the U.S. Federal Reserve sparked a technical selloff after prices broke below a key support level.
Bullion was hit hard by follow-through selling after minutes from the Fed's July meeting on Wednesday showed policymakers debated whether interest rates should be raised earlier given a surprisingly strong job market recovery, traders said.
Thursday's encouraging U.S. housing and jobs data also stirred economic optimism, pressuring gold. Bullion underperformed the precious metals complex and equities, with the S&P 500 index up 0.4 percent to a record.
In overnight trading between 2:00 a.m. and 2:05 a.m. Eastern time, more than 8,000 lots changed hands for the December contract, or about one-third of the volume at the time, when prices broke below $1,287 an ounce, the 200-day moving average where traders placed stop-loss orders, traders said.
"Now that we have crossed below the 200-day moving average, an important threshold watched by many, a lot of trend-following traders are likely to establish short positions in gold," said Phillip Streible, senior commodities broker at Chicago-based RJO Futures.
Spot gold was down 1.3 percent at $1,275.46 by 2:41 p.m., its biggest one-day loss in more than a month. Earlier, bullion traded as low $1,273.06 an ounce, its weakest since June 18.
U.S. COMEX gold futures settled down $19.80 at $1,275.40.
Investors largely ignored data showing holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.9 tonne to 800.09 tonnes on Wednesday, the third straight daily increase.
Analysts said the next focus for the market will be Fed Chair Janet Yellen's comments at the Jackson Hole central bankers' gathering on Friday.
Among other precious metals, silver was unchanged from Wednesday's close at $19.45 an ounce, having earlier touched a two-month low of $19.25.
Spot platinum fell to its lowest level in more than three months at $1,407.30. It was down 0.5 percent at $1,414.75, down for the ninth consecutive session in the longest losing streak since July 2008.
Spot palladium, which hit a 13-1/2 year high of $900 earlier this week before falling back, was up 1.4 percent at $874.90 an ounce.
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