Gold prices settled near a 3-1/2 month low on Wednesday as the dollar rallied and stock markets held near recent peaks, after a technical breakout the previous day saw the metal slide more than 2 percent.
Gold posted its biggest daily fall since mid-December on Tuesday after strong U.S. data helped send U.S. and German stocks to record highs, with losses accelerating as prices broke out of the narrow range they had held in for more than a month.
Spot gold initially took some support from a softer tone to European stocks on Wednesday, but later fell to its weakest since February 6 at $1,256.35. It was last at $1,259.80 an ounce, down 0.3 percent.
Chart: Precious Metals
for June delivery settled $6.20 lower at $1,259.30 an ounce.
Strong economic data in the United States shored up world stocks on Wednesday, as record highs for U.S. and German markets whetted appetites for risk.
The euro fell to a three-month low as expectations solidified for a multi-pronged attack on monetary policy by the European Central Bank next week. Comments this week by ECB President Mario Draghi were read as confirming the bank is on course to ease policy significantly.
From a technical perspective, gold remains vulnerable to further losses, according to analysts who study past price moves to determine the future direction of trade.
Gold buying in the price-sensitive Asian markets remained soft on Wednesday, traders said, with Chinese demand failing to pick up despite the sharp overnight drop in prices.
Trade data on Tuesday showed that China's imports of gold from main conduit Hong Kong fell to a 14-month low in April as importing banks were adequately stocked amid softer demand and a weaker yuan.
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