"The big jump in consumer confidence coupled with the recovery in stocks has gold dipping to $1,135 near the key $1,130 pivot, from which gold fell to lows of the move on the Sunday Night Massacre and subsequently regained last week," said Tai Wong, director of base and precious metals trading for BMO Capital Markets.
Wong was referring to the steep fall in prices on July 19.
Palladium saw the steepest losses by far in the precious metals market, falling sharply for the third straight session on concern about demand in China.
"(Palladium is) pretty much all used in gasoline catalyst converters," Wong said, attributing the white metal's price slump to demand concern in China.
Spot palladium fell as much as 7.4 percent to $528.50 an ounce, the lowest since September 2010.
Gold had already fallen on Monday, with some traders citing liquidation to cover losses on other markets as a plunge in Chinese equities sent world stocks and commodity prices tumbling and knocked the dollar.
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Then on Tuesday, Wall Street posted its sharpest rally of the year, a day after the market's worst performance in four years on fears about China's economy.
The U.S. dollar jumped more than 1 percent against a basket of major currencies.
"We're still in an environment where we know U.S. interest rates will go up," Standard Chartered analyst Nicholas Snowden said. "For gold, that limits how much of a bid you will see, even with the sort of financial market turmoil that ensued yesterday."
Expectations that the Fed was on track to raise interest rates this year had receded prior to Tuesday's positive data, after a dovish reading of minutes from its last policy meeting.
Platinum was down 1.5 percent at $972.75 an ounce, while silver was down 0.9 percent at $14.65 an ounce.