Gold prices fell to a 1-1/2-week low on Wednesday as renewed hopes that U.S. President Donald Trump will unleash growth-friendly spending policies boosted shares and eroded bullion's safe haven attraction.
Spot gold was down 1 percent at $1,196.79 an ounce by 2:08 p.m. ET (1908 GMT) after touching $1,192.74, the weakest since Jan. 13, while U.S. gold futures settled down $13, or 1.07 percent, at $1,197.8 per ounce.
Investors turned their attention to world stocks, which hit a 19-month high, lifted by strong Japanese trade data, stellar European company earnings and hopes that Trump will press ahead with a large fiscal spending package.
The Dow Jones Industrial Average traded above 20,000 for the first time.
"The combination of higher bond yields and higher stocks are outweighing the marginally weaker U.S. dollar and in turn is causing the loss in gold today," said Carsten Menke, research analyst at Julius Baer in Switzerland.
A softer dollar makes commodities priced in the U.S. currency cheaper for buyers using other currencies and usually boosts gold.
Menke, who expects the dollar to rebound and pressure gold in coming weeks, has pegged a three-month price target of $1,075.
"As equities take all the headlines, profit-taking and new short positions by Wall Street gold traders are taking hold," said Walter Pehowich, executive vice president in charge of precious metals investments services for Dillon Gage Metals.
Pehowich, however, expected gold prices could move higher in 2017.
"If the president continues this America First policy, it looks like the dollar is destined to head south in a big way and gold will be the benefactor of the move," he said.
Gold hit two-month highs earlier in the week and has rallied about 8 percent since mid-December, fueled by worries over Trump's policies.
Gold may also be pressured due to lower demand linked to China's Lunar New Year festival which begins on Friday, traders said.
"Gold prices have moved higher since the beginning of the year and need some technical correction in the very short-term," said Jiang Shu, chief analyst at Shandong Gold Group, adding gold might test $1,185 during the Lunar New Year.
Palladium slumped as much as 7.2 percent to $727.50 an ounce, and pared losses slightly to be down 7 percent at $731, its biggest one-day fall since April 2013. This slump was off the prior session's 1-1/2-year high.