Gold declined to a four-month low after minutes from the Federal Reserve’s last meeting showed policymakers may reduce monetary stimulus in coming months, curbing demand for the metal as a hedge against inflation.

Bullion for immediate delivery fell as much as 2.7 percent to $1,241.13 an ounce, the lowest since July 9, and traded at $1,244.83 at 3:27 p.m. New York time. Policymakers expected that economic data will show ongoing improvement in the labor market and thus “warrant trimming the pace of purchases in coming months,” according to the record of the Federal Open Market Committee’s October meeting.

Prices have tumbled 26 percent this year, heading for the first annual loss since 2000. In October, U.S. retail sales rose the most in three months, while the cost of living as measured by the consumer-price index fell for the first time in six months, separate government reports showed. The dollar climbed as much as 0.5 percent against a basket of 10 major trading partners.

“The tapering talk continues to weigh on gold and boost the dollar,” Scott Gardner, who helps manage $400 million at Verdmont Capital SA in Panama City, said in a telephone interview. “Gold is not in favor as inflation is also very tame.”

Gold rose 70 percent from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases, fueling expectations of accelerated inflation and a weaker dollar.

Bullion fell into a bear market in April as some investors lost faith in the metal as a store of value amid a U.S. equity rally and low inflation. Fed Bank of St. Louis President James Bullard said a cut in bond buying is “on the table” for next month.

“The environment has turned unfriendly, and things are very harsh for gold,” Michael Gayed, the chief investment strategist who helps oversee $250 million at New York-based Pension Partners LLC, said in a telephone interview. “Today’s statement is further testimony that tapering may happen sooner than later.”