Gold prices fell on Tuesday, weighed down by a stronger U.S. dollar, and may re-test a seven-month low after a failed attempt to break higher in the previous session.
"If this dollar strength continues, we could see another test of $1,240, the lows from last week and mid-December, a crucial technical level," said Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt.
Bullion has been on a downtrend since touching $1,365.23 on April 11, then the strongest since Jan. 25.
The dollar's index against a basket of six major currencies was up 0.33 percent at 94.386 after dropping to its lowest since mid-June on Monday. A stronger dollar makes greenback-denominated gold more expensive for holders of other currencies.
"Strong stocks, overseas buyers need dollars to pay for stocks, so gold again becomes expensive," said George Gero, managing director of RBC Wealth Management.
Investors were also awaiting developments on the trade war between China and the United States, said Dick Poon, general manager, Heraeus Metals Hong Kong Ltd. Last week, the world's top two economies slapped tit-for-tat duties on $34 billion worth of each other's imports.
"So far we have seen little to no impact on the gold market because of the trade war, the only dominant story is the dollar index," said Naeem Aslam, ThinkMarkets.com chief market analyst.
Trump suggested on Monday that China might be seeking to derail U.S. efforts aimed at denuclearizing North Korea.
Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, dropped 0.18 percent to 800.77 tonnes on Monday, its lowest since August 2017.
"For gold to recover, we need to see the return of investors, not only speculative but ETF investors," Commerzbank's Fritsch said. "We may have to wait until the autumn until we see longer lasting increase in gold prices."
Palladium shed 2.02 percent at $941.10. Palladium may be forming an inverted head and shoulders pattern, Stéphanie Aymes, head of technical analysis at Societe Generale, said in a note. This pattern typically points to higher prices. "The pattern's confirmation level stands at $1,043/47 and therefore remains a prominent hurdle," she added.