Gold settled lower on Wednesday—a sign that its positive start to 2014 may be fading—leaving U.S. growth prospects and expectations for further Federal Reserve stimulus reduction to dominate sentiment.
Spot gold lost 0.2 percent to $1,239 per ounce, after falling nearly 1 percent on Tuesday—its biggest one-day decline this year. U.S. gold futures for February delivery settled $3.20 lower at $1,238.60 per ounce.
Investors have shied away from putting new money into gold as international economic recovery, led by the United States, is boosting stock markets and hurting the metal's appeal.
Dealers and analysts said concerns about further trimming of U.S. central bank stimulus, which weighed on prices last year, were back on the agenda.
The Federal Reserve holds its next policy meeting on Jan. 28-29 when markets think the U.S. central bank will announce a second cut to its $85 billion monthly bond purchases, which had burnished gold's inflation-hedge appeal.
"We've reached the point where people are asking 'what next?' Gold tried $1,250 and $1,260 very briefly but didn't really look comfortable," Macquarie analyst Matthew Turner said.
"There's just not a lot of confidence that an upside move can be maintained," he added.
The International Monetary Fund raised its global growth forecast for the first time in nearly two years, saying fading economic headwinds should permit advanced nations to pick up the mantle of growth from emerging markets.
World stocks hovered near to 5.5-year highs as moves to cool lending-market tensions in China gave an extra boost to the brightening global economic outlook.
In other market news, sources said banks involved in the gold fix are reviewing the mechanics of its process to try to ensure that the benchmark complies with upcoming regulations. "With all the scrutiny on benchmarks, starting with Libor, it makes sense to make sure that the way the fixing is conducted doesn't leave itself open to accusations of manipulation," one source said.