Spot gold fell further on Wednesday after U.S. Federal Reserve officials acknowledged risks from overseas and a weak start to the year at their March meeting, according to minutes from the meeting released on Wednesday.
The meeting concluded with the Fed opening the door to a June rate hike, and the minutes said that ``several participants'' went on record saying they expected upcoming economic data would warrant an initial rate increase that month.
But even those less certain about the June timing felt the economy had improved enough for the Fed to shift into a meeting-by-meeting assessment of whether rates should move higher.
Spot gold was at $1,200 an ounce, down 0.9 percent. Bullion climbed to its highest level since Feb. 17 at $1,224.10 on Monday, after weaker-than-expected U.S. nonfarm payrolls cooled prospects of an earlier interest rate move.
U.S. gold for June delivery closed down $7.50 an ounce at $1,203.10.
"We're seeing the hawkish sentiment dissipate," ING's senior commodity strategist Hamza Khan said. "It's becoming clear that outside of the U.S. payrolls numbers, the rest of the economy was not exactly booming.
"The blush of the dollar's rose is beginning to wear off," he said. "That makes for a really interesting proposition for gold."
The dollar was down 0.1 percent against a basket of leading currencies, mostly due to yen strength after the Bank of Japan's decision to stand pat on monetary policy.
Minneapolis Fed President Narayana Kocherlakota on Tuesday laid out a case for waiting until the second half of 2016 to start raising rates, a day after New York Fed President William Dudley said the timing of an increase was unclear.
Physical demand from second-biggest gold consumer China stayed weak as the premium for physical gold at the Shanghai Gold Exchange held just above par with the global spot benchmark on Wednesday.
"There are more investment venues for the Chinese to look into other than gold. Equities are roaring ahead and they can now buy bond futures. I don't see why people should buy gold at this time," said Howie Lee, investment analyst at Phillip Futures.