Gold fell on Friday, as the dollar extended gains after positive economic data and ahead of impending U.S. budget cuts.
The yellow metal struggled in tandem with losses in other commodities, with copper falling to a three-month low, crude oil dropping more than one percent and platinum touching a seven-week trough after poor economic data in China and the euro zone hurt sentiment.
Sentiment remained weak after the metal closed February with its longest run of monthly losses in 16 years
Earlier, data showed that U.S. consumers increased spending modestly in January from December. Income plunged by the most in two decades, although the decline followed a one-time surge in December.
Additionally, the market is braced for the $85 billion worth of spending cuts due to be introduced on Friday, after U.S. lawmakers failed to reach a deal to avert them.
Spot gold, choppy for much of the session, reversed earlier gains to fall by 0.3 percent to $1,575 an ounce. It managed a modest bounce from a 5-percent loss in February, the biggest monthly fall since last May and the fifth consecutive month of declines, its longest stretch of monthly losses in16 years.
U.S. gold futures for April delivery ended down $5.80 at $1,572.30.
"There is some support coming in ahead of the U.S. spending cuts, as these may have some potential impact on growth and favour demand for gold," Saxo Bank general manager Ole Hansen said.
"But the metal is still likely to struggle as investor confidence is very low and it won't be restored easily."
The market is looking at the $85 billion of spending cuts due to be introduced on Friday after U.S. lawmakers failed to reach a deal to avert them.
Concerns about economic growth in the United States would imply prolonged monetary support. Accommodative policies favour gold as low interest rates encourage investors to put money into non-interest-bearing assets.
The dollar index rose to a six-month high against a basket of currencies after weak euro zone data highlighted a growing economic disparity with the United States.
U.S. data showed the pace of growth in the manufacturing sector was at its fastest in over a year and a half in February.
The aftermath of Italy's inconclusive elections also remained a concern to investors, as political instability in the euro zone's third-largest economy threatens to reignite the region's debt crisis. Euro zone finance ministers will discuss the situation next Monday.
ETFs Liquidation Continues
Sentiment among fund investors remained negative. Holdings of the SPDRGold Trust, the world's top gold ETF, dropped to a nearly seven-month low of 1,254.49 tonnes on Feb. 28 in its eighth straight session of decline, finishing February with a record monthly outflow of 73.606 tonnes.
"Investor confidence in bullion has taken a heavy blow this yearand it is unlikely we shall see much fund liquidity returning back to themarket as global ETF holdings continue to decline," VTB Capital said in a note.
Although some analysts saw a looming fiscal crisis in the United States only lending minimal short-term support, others said this could help gold regain some favour, as it would argue for prolonged monetary support. Accommodative policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets.
"As U.S. sequestration kicks off, headlines are likely to grab attention, and an escalation of concerns amid the political noise would offer upside risks ahead," UBS said in a note.
Platinum fell to a seven-week low, dented by a drop in Chinese factory growth to a five-month low in February,which was hurting industrial commodities.
Prices were last seen around $1,571, still down 0.5 percent, pinned below the value of gold.
Platinum has largely been trading at a discount to gold since September 2011 as concerns over the health of the global economy boosted demand for bullion as a safe haven while dampening interest in industrial metals like platinum.
Spot palladium fell 0.8 percent to $720 an ounce.
The platinum-group metals (PGMs) market is now awaiting U.S. car sales data for February, due later in the day. Both platinum and palladium are used in car catalysts to clean up exhaust emissions.
Spot silver rose 0.5 percent to $29 an ounce.