Gold fell 2 percent to a 4-1/2 month low on Friday after minutes from the U.S. Federal Reserve highlighted increasing concerns over its highly stimulative monetary policy, knocking stock markets lower and boosting the dollar.
Fears that central banks' money-printing to buy assets will stoke inflation had been a key driver in boosting gold, which rallied to an 11-month high in early October after the Fed announced its third round of aggressive economic stimulus.
Spot gold fell to its lowest since late August at $1,629.59 an ounce, and was heading for its sixth week of losses - the longest such run since June 1999. Gold was down 1.9 percent at $1,631.60 per ounce at 1021 GMT.
U.S. gold futures for February fell 2.6 percent or $43.50 an ounce to $1,631.10.
"The market had been too preoccupied with the sheer size of the quantitative easing programme, and had not seen that at some point you would need a phase out of QE policy," Christin Tuxen, an analyst with Danske Bank, said.
"The timing will be earlier than the market had been initially expecting, which is negative for gold."
Minutes from the Fed's December policy meeting showed some voting members of the Federal Open Market Committee were increasingly worried about the potential risks of the Fed's asset purchases on financial markets.
Ultra-loose monetary policy implemented by leading central banks had fuelled gold's rally as a climate of historically low interest rates heightened inflationary fears.
Recent positive U.S. economic data has fuelled the view that further steps to stimulate the economy may be unnecessary. Investors are keenly awaiting U.S. non-farm payrolls data due at 1330 GMT on Friday for a clue to the pace of economic recovery.
The figures are expected to show the economy added 150,000 jobs last month, after adding 146,000 in November. Tuxen said that if the payrolls data reveals that the economy added at least 200,000 jobs, gold prices could extend losses.
CHART SUPPORT GIVES WAY
Technical analysts, who study past chart patterns to determine future moves in prices, say the failure of key support at $1,635 could lead to a further retracement.
"Since the peak we saw in early October we've been in a downtrend," Cliff Green of the Cliff Green Consultancy said. "The rally from $1,635 to $1,695 has always been just a correction within that downtrend, and this (current move) is a resumption of that."
"If we break (support around $1,635), we're vulnerable to a movement down toward the $1,600 area," he added. "Our short- to medium-term outlook is bearish. We've had a good correction against that trend, which looks complete, and now we're resuming that downward path."
Among exchange-traded funds, the SPDR Gold Trust reported an outflow of 9.638 T yesterday, the biggest one-day decline in its holdings since September 26.
Lower prices spurred buying from jewellers in Asia, keeping premiums for gold bars steady in Singapore at $1.10 to $1.20 to spot London prices.
The Shanghai Gold Exchange will lower trading margins and daily trade limits for its gold and silver forward contracts to meet growing investor demand, the bourse said on Friday.
Among other precious metals, silver was down 3 percent to $29.24 an ounce, having also slipped to a 4-1/2 month low at $29.21 in earlier trade.
Silver's underperformance made the metal its cheapest compared to gold since late August, with 55.76 ounces of silver now equivalent to one ounce of gold, against 50.4 in early December.
Platinum group metals also fell, although they outperformed gold and silver. Platinum fell 1.1 percent to $1,541.25 and palladium slipped 1.4 percent to $680.25 an ounce.