New York: Gold sank 2.5 per cent on Friday as institutional investors sold aggressively after the Saint Louis Fed president said the US central bank might move next month to reduce stimulus spending that has bolstered bullion for years.

Silver tumbled 5 per cent and platinum group metals fell more than 2 per cent.

Gold all but erased the 4.5 per cent rise posted on Wednesday after the Fed said it would continue its massive bond buying programme. That surprise decision triggered a buying binge that sent gold to its biggest one-day gain in over a year.

Gold fell more than industrial commodities and equities, which also slid on Friday, after St Louis Fed President James Bullard said the US central bank could scale back its massive bond buying programme at an October meeting if data points to a stronger economy.

“The gold market had rallied substantially on tapering being taken off the table. Now Bullard’s comments have injected some uncertainty near term, and that has prompted a wave of selling in the gold and the precious metals complex,” said James Steel, chief precious metals analyst at HSBC.

Spot gold fell 2.4 per cent to $1,331.20 an ounce by 3.32pm EDT (1932 GMT).

For the week, gold is now around 0.5 per cent higher after giving back most of Wednesday’s 4.2 per cent rise, its biggest daily gain since June 2012.

US Comex gold futures for December delivery settled down $36.80 an ounce at $1,332.50, with trading volume at about 10 per cent above its 30-day average, preliminary Reuters data showed.

Option-related selling accelerated gold’s decline, said Comex gold options floor trader Jonathan Jossen, noting that many participants exercised put options after heavy buying of inexpensive puts following Wednesday’s rally.

Relatively thin volume during gold’s rally this week also suggested that gains could be short lived, Jossen said.

In addition, a two per cent drop of open interest in Comex gold futures on Wednesday showed the post-Fed rally was driven by investors who bought back previously bearish bets instead of new money, analysts said.

Gold prices fell faster after declining below a key technical support at $1,345 where the 50-day and 100-day moving averages were converging, analysts said.