On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded down 0.67% at USD1,605.05 a troy ounce. Gold hit at a low of USD1,603.35 a troy ounce and a high of USD1,608.35 a troy ounce during the session.
Gold futures were likely to test support at USD1,587.35 a troy ounce, the low from June 12, and resistance at USD1,622.95, the high from June 20.
Gold fell on news the Federal Reserve moved to bolster the economy by expanding a USD400 billion program shuffling of its Treasury holdings, known as Operation Twist, by another USD267 billion.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasurys in tandem with the aim of pushing down long-term interest rates.
The market had not fully ruled out the Fed would resort to a more powerful stimulus tool known as quantitative easing, under which the Fed steps in a buys Treasurys and other assets directly from banks, injecting the economy full of liquidity in the process to encourage economic recovery and hiring.
Unlike quantitative easing, Operation Twist does not expand the Fed's balance sheet and does not involve pumping massive amounts of liquidity into the economy that weakens the dollar with the aim of expanding recovery, under which gold soars.
Gold and the dollar often trade inversely from one another.
The Federal Reserve didn't serve as the yellow metal's sole weather vane.
The dollar was up in early Asian trading that despite falling borrowing costs in Spanish government bond auctions and despite political progress in Greece, where a coalition government was formed, the European debt crisis was far from abating, which kept the euro lower and the dollar stronger.
Elsewhere on the Comex, silver for July delivery was down 1.56% and trading at USD27.945 a troy ounce, while copper for July delivery was down 0.11% and trading at USD3.376 a pound.
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