Gold fell 1 percent on Wednesday, nearly erasing all of the previous session's gains, hit by disappointment over a lack of new Federal Reserve stimulus and deflation worries over across-the-board deep U.S. spending cuts.
A rally in U.S. equities also weighed on gold's safe-haven appeal, as bullion snapped a four-session winning streak a day after Fed Chairman Ben Bernanke defended the central bank's bond-buying stimulus policy.
On Wednesday, Bernanke said the U.S. jobless rate is unlikely to reach more normal levels for several years, but there were few surprises in his second day of testimony to the Congress.
Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC, said that the central bank's policy of bond buying known as quantatative easing "is becoming less and less effective as Bernanke announced nothing new.''
That brings the deflationary aspect of budget cuts known as sequestration back to the forefront, McGee said.
It is unlikely that Congress will act to stop the $85 billion in across-the-board cuts due to start Friday. The cuts, mandated by a 2011 deficit reduction law, dent gold's inflation-hedge appeal.
Spot gold was down 1.1 percent to $1,595.71 an ounce, off a 1-1/2-week high of $1,619.66 set on Tuesday.
U.S. gold futures were down $19.80 to $1,595.70, with trading volume in line with their 250-day average, preliminary Reuters data showed.
(Read More: Fed's Bernanke Stays the Course)
On Tuesday, Bernanke said inflation remained subdued and the potential risks of loose monetary policy did not seem material now. His remarks had eased fears the Fed would end its massive bond-buying earlier than thought.
(Read More: As Fed Defends QE, Traders Get Bullish on Gold)