Gold prices fell on Thursday even though the U.S. dollar rally lost steam, as safe haven bids for bullion declined after political tensions in Italy eased, which also lifted the euro.
"The situation in Italy is fading. We're not seeing much of a safe haven bid for gold," said Chris Gaffney, president of world markets at EverBank.
Italy's two anti-establishment parties renewed attempts to form a government and avoid snap elections that investors fear would serve as a quasi-referendum on Rome's membership of the euro zone.
Spot gold was down 0.14 percent at $1,299.23 ounce by 4 p.m. ET. It was down nearly 1 percent for the month, headed for its second straight monthly decline. U.S. gold futures for August delivery settled down $1.80 at $1,304.70.
Gold got an early boost as the dollar fell for a second day versus the euro, making dollar-priced gold cheaper for non-U.S. investors. Italian bonds and European equities posted a second day of gains. Escalating trade tensions also supported gold, traders said.
Washington announced plans to slap tariffs on EU steel and aluminum imports, sources said. The EU has said it does not want a trade war but will respond if Washington imposes tariffs.
China said on Wednesday it was ready to fight back if Washington was looking for a trade war. Tariffs "would definitely reduce risk appetite, and gold will benefit from this," said Bart Melek, head of commodity strategy at TD Securities.
Investors also awaited U.S. employment data coming on Friday.
"We're still focused on wage growth to see if we'll see any kind of wage inflation," EverBank's Gaffney said. "Even with the labor market as strong as we've seen it, we're just not seeing that bleed over into wages."
Signs of inflation often encourage investors to buy gold, but higher wage growth would give the U.S. Federal Reserve more incentive to hike interest rates. This could dent the appeal of gold, which does not bear interest.
Meanwhile, spot silver declined 0.57 percent at $16.42, but was on track for a monthly rise of about 1 percent, its biggest since January.
Platinum gained 0.1 percent at $907.40, headed for a 0.5 percent monthly increase.
Palladium increased 0.23 percent at $987.50 and was headed for its biggest monthly gain since December, climbing over 2 percent.