Gold Prices Outlook
24 karat gold bars are seen at the West Point Mint, US - Reuters Reuters

Gold prices dropped to a five-week low on the likelihood of a reduction in the US Federal Reserve's asset-buying stimulus and as fears of a potential US military intervention in Syria subsided.

Spot gold fell to $1,304.56 (£821.61, €980.36) an ounce and was last quoted at $1,311 an ounce.

US gold futures for delivery in December hovered at $1,308.60 an ounce, Reuters data showed.

Spot gold had hovered around $1,387.46 while US gold futures for December delivery hovered at $1,386.50 an ounce.

Gold prices fell earlier following indications that the US and Russia were close to agreeing a diplomatic solution to the ongoing Syrian crisis.

Bullion prices were then pulled down by fears that the Fed would trim its $85bn a month bond-buying programme.

The Fed's policy-setting committee will meet on 17-18 September. Market participants expect the central bank to provide clarity on the timing and size of the planned reduction of its monetary stimulus.

"Gold's drop was mostly due to the waning safe-haven buying after the diplomatic action in Syria," said MKS SA Senior Vice President Bernard Sin. "But now it's all about the Fed tapering talks and expectations that the central bank will start, albeit slowly, as soon as this month," Sin added.

"The key question market participants are asking is by how much will the US Federal Reserve taper? And the answer seems to be somewhere around $10bn, effecting only longer term US treasury purchases, and not mortgage backed securities," said Tim Radford, global analyst at Rivkin Securities.