An overflow of liquidation also dragged silver to a near one-month low, while platinum touched its weakest price since September and palladium fell sharply too.
December delivery gold on the New York Mercantile Exchange's Comex division shed $6.30 or 1.35 percent to end at $460.60 an ounce, its cheapest settlement since September 15, after trading $468.30 to $459.50,
Gold took a hit while the dollar rose, with the Federal Reserve widely expected to announce a 12th straight rise in rates in the afternoon, taking the benchmark rate to 4 percent and increasing the yield attraction for the US currency.
That would tend to weigh on gold because investors sometimes turn to the metal as a dollar alternative, market sources said. "This was another round of fund selling, with the trade buying it scale-down on the break," said James Quinn, commodities commentator at AG Edwards & Sons in New York.
Players were awaiting the Fed.'s post-meeting statement at around 2:15 pm for a signal of future policy moves or word on inflation pressures, Quinn said.
"If the Fed says today it is going to continue to tighten, then gold could remain weak, but if that type of language isn't in their statement, then this thing could come back tomorrow," he added. Technically, some gold watchers felt a retreat to below $460 had been due after it rose too quickly to an 18-year high atop $480 during October.
Dealers also said that a lack of physical demand from top consumer India also had fallen short of expectations going into the festival season, which was weighing on sentiment.
US trading volume were heavy, although parts of Europe were on holiday and markets in India, Singapore and Malaysia were closed for a Hindu festival.
Estimated Comex gold volume was a brisk 82,000 lots by 1 pm, which was just before the close, against on Monday's tally of 68,486 contracts.
Open interest fell 2,967 lots to 343,341 lots on October 31. Spot gold was quoted down at $459.50/460.25 an ounce, way below on Monday's New York close at $464.80/5.60.
On Tuesday's afternoon fix by London bullion dealers was at $459.50. Broker Natexis Commodities Markets said in its latest review that even if gold clears $500 in 2006, it looks doubtful that investors could maintain prices at that level.
This was its view "especially if macroeconomic imbalances appear to be approaching resolution, and the capacity of the physical markets to absorb such elevated prices must be called into question, particularly if, as expected, world economic growth slows notably," it said.
December silver dropped 11.0 cents to close at $7.47 an ounce, trading from $7.62-7.41, which was its lowest October 5. Spot silver reached $7.43/46, from $7.52/55 previously.
It fixed at $7.535. Nymex January platinum shed $14.80 to $928.40 an ounce. Spot platinum was last at $923/927. December palladium lost $3.75 to finish at $223.40 an ounce.
Spot palladium fetched $219/223.