On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at USD1,298.55 a troy ounce during U.S. morning hours, down 5.5% on the day.
Comex gold prices fell by as much as 6.5% earlier in the session to hit a daily low of USD1,285.25 a troy ounce, the weakest level since September 28, 2010.
Gold futures were likely to find near-term support at USD1,277.10 a troy ounce, the low from September 28, 2010 and resistance at USD1,365.20, the high from May 19.
Fed Chairman Ben Bernanke said the bank could begin slowing asset purchases by the end of 2013 and wind them down completely by the middle of 2014 if the economy picks up as the central bank expects.
The bank said it expects the U.S. economy to grow between 2.3% and 2.6% in 2013. The Fed also said it expects the unemployment rate to fall to between 6.5% and 6.8% by the end of 2014 and inflation to edge closer to its 2% target.
Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would end its bond-buying program sooner-than-expected.
Indications the Fed will begin to taper asset purchases sent the U.S. dollar higher across the board.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.8% to trade at a two-week high of 82.10.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Elsewhere on the Comex, silver for July delivery plunged 7.7% to trade at USD19.96 a troy ounce. Silver prices fell by as much as 9.1% earlier in the day to hit a session low of USD19.65 a troy ounce, the weakest level since September 10, 2010.
Meanwhile, copper for July delivery fell 1.4% to trade at USD3.097 a pound. Earlier in the day, copper futures fell by as much as 2.3% to hit USD3.069 a pound, the weakest level since May 2.
Copper prices came under heavy selling pressure following the release of weak Chinese manufacturing data earlier in the day.
Data showed that China’s HSBC preliminary manufacturing purchasing managers’ index fell to a nine-month low of 48.3 in June from 49.2 in May as new orders fell, indicating that the slowdown in manufacturing is worsening.