Gold near 3-week low after Fed optimism over US economy

Gold was languishing near a three-week low on Thursday after the US Federal Reserve ended its bond-buying stimulus programme and expressed confidence in the economic recovery, dimming bullion's safe-haven appeal.

Ending its monthly bond purchases, the Fed dropped a characterisation of US labour market slack as 'significant' in a show of confidence in the economy's prospects.

In a statement on Wednesday after a two-day meeting, the central bank largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as unlikely to undercut progress towards its unemployment and inflation goals.

"The announcement struck us as coming across more hawkish than what the market was expecting," said INTL FCStone analyst Edward Meir.

Gold, often seen as an alternative investment during economic and financial uncertainty, fell on fears the vote of confidence in the recovery could prompt the Fed to raise interest rates soon. Bullion, as a non-interest-bearing asset, could take a hit when higher rates are in place.

"We think the next shoe to drop will come on Thursday when US GDP numbers for the third quarter will be released. If the number comes in higher than 3%, as we suspect it will, we would not rule out another round of heavy selling in gold that could see us revisit the old lows of $1,180," Meir said.

Spot gold was little changed at $1,213.22 an ounce by 0239 GMT. In the previous session, it touched $1,208.26, its lowest since October 8, before closing down 1.3%.

The metal hit a 15-month low of $1,183.46 earlier this month.

US gold futures slid about 1% to $1,213.20 on Thursday, tracking losses in spot gold.

The US Commerce Department will release gross domestic product figures at 1230 GMT. The economy is expected to have grown at a solid 3% annual rate in the third quarter.

In a reflection of investor sentiment, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.16% to 742.40 tonnes on Wednesday, a six-year low.

The outflows could undermine any possible rally in gold.

In the wider markets, Asian stocks dipped and the dollar hovered at three-week highs versus the yen after the Fed's statement.