Gold futures dropped on Thursday after Federal Reserve Chairman Ben Bernanke voiced his support for an economic stimulus plan to prevent a recession.
Gold for February delivery fell $2.70 to $879.30 per ounce on the New York Mercantile Exchange, after earlier rising as high as $891.50.
Given the recent volatility, wide intra-day price swings seem set to continue, said James Moore, precious metals analyst at TheBullionDesk.com in a research note.
The precious metal has dropped more than $20 since it closed at an all-time high of $903.4 on Monday.
The dollar index, which tracks the value of the greenback against a basket of other major currencies, fell 0.2 percent to 76.1.
The dollar slipped after Fed Chairman Ben Bernanke repeated in a speech to the U.S. Congress' House Budget Committee that more easing may be necessary. Bernanke urged temporary plans to be quickly executed over the next 12 months in order to avoid the risk of boosting the economy too much beyond the short term and not cause a big jump in the budget deficit.
The demand for gold typically rises during times of economic uncertainty since the metal is known for holding its value and is seen as a safe haven for investors. Last year, gold rose nearly 32 percent and toppled the $900 an ounce mark for the first time last week. Still, when adjusted for inflation, gold remains well below its record high. An ounce of gold at $900 in 1980 would be worth about $2,300 today.
The Fed has cut the fed funds rate by 1 percentage point since September. Further rate cuts could lower the value of the dollar. Investors have priced in at least a half-percentage-point cut in the benchmark U.S. rate this month, with some saying the Federal Reserve could cut rates by three-quarters of a point.
The Fed is scheduled to render its interest rate decision at the end of a two-day meeting from January 29 to 30.
Also on the Nymex, silver for March delivery rose 19.5 cents to fetch $16.090, while March copper slipped 0.80 cent to $3.1645 a pound. Platinum for April delivery shed $8.60 to $1,558.50 an ounce.