Gold fell on Wednesday as the dollar climbed to levels not seen in four years and global shares rebounded, while investors remained cautious ahead of U.S. economic data due later in the week.
Bullion's safe-haven appeal dropped after data showed sales of new U.S. single-family homes surged in August and hit their highest level in more than six years, offering confirmation that the housing recovery remains on course. The dollar index against a basket of currencies rose 0.4 percent and touched highs last seen in July 2010.
"A stronger dollar is a fairly consensus view as well as higher U.S. Treasury yields ... the Fed rhetoric lately has been helping as well, and for precious metals it means that the outlook remains poor," Credit Suisse analyst Karim Cherif said.
Chart: Precious Metals
U.S. gold futures settled $2.50 lower at $1,219.50 an ounce, with trading volume in line with its 30-day average, preliminary Reuters data showed.
Spot gold, stronger initially, fell to a session low of $1,216.20 an ounce before trading down 0.4 percent at $1,217 an ounce, less than $10 above an 8-1/2-month low of $1,208.36 reached in the previous day.
America's brightening economic outlook and Europe's sputtering business environment requiring monetary loosening have helped the dollar index post 10 straight weekly gains.
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A stronger U.S. dollar, with room to appreciate further, will continue to weigh on the commodities sector, making gold and silver unattractive investments, said Dominic Schnider, head of commodities at UBS Wealth Management. The market is likely to monitor U.S. durable goods and GDP data to be released on Thursday and Friday respectively.
Meanwhile, U.S.-led strikes against militants in Syria on Tuesday failed to spur demand for gold. Investor interest in gold remained weak. SPDR Gold Trust , the world's top gold-backed exchange-traded fund, said its holdings fell 1.2 tons to 773.45 tons on Tuesday - the lowest since December 2008.