Gold on Tuesday fell to a new three-week low, bringing losses this week to more than one
percent, as demand for riskier assets drove stocks and U.S. treasury yields higher and the dollar hit a six-week peak against the yen.
"Risk appetite is back," said Societe Generale analyst Robin Bhar.
Rising share prices and higher bond yields increase the opportunity cost of holding non-yielding bullion, while a stronger dollar makes gold more expensive for holders of other currencies.
Gold on Monday fell 0.9 percent after U.S. lawmakers agreed on a spending package to avert a U.S. government shutdown and the Nasdaq share index reached a record high.
The market's so-called fear gauge, the VIX volatility index, has meanwhile fallen to its lowest since 2007.
Gold has slipped more than 3 percent since a mid-April high and is hovering just above its 200-day moving average, currently at around $1,252 an ounce.
Analysts said a move below that key technical level would unleash selling as fund investors reduced a long position that has risen to the largest in 5 1/2 months.
Gold was likely to move towards its 400-day moving average of $1,224, technical analysts at ScotiaMocatta said in a note.
Investors were looking ahead to the outcome of a two-day U.S. Federal Reserve policy meeting to be announced at 2 p.m. on Wednesday and employment data that will indicate the speed of U.S. economic growth.
"If the Fed signals further rate increases and shrinking of the balance sheet tomorrow and then we get a good jobs number on Friday we should certainly end the week below $1,250, and maybe closer to $1,240," said Societe Generale's Bhar.
In other precious metals, spot silver lost 0.11 percent to $16.82 an ounce.
Platinum was 0.10 percent higher at $924.10, after falling to a four-month low at $923 in the previous session.
Palladium added 0.09 percent to $815.20. The metal used in the automotive industry for emission-controlling catalytic converters is near a two-year high, but car sales are too weak to sustain it, said Julius Baer analyst Carsten Menke.
"Prices have decoupled from fundamentally justified levels and it is time to sell the rally," Menke said, predicting that prices could fall to $700 over the next three months.