Gold prices retreated towards $1,650 an ounce on Wednesday as the dollar strengthened against the euro, after a downbeat reading of euro zone manufacturing activity contrasted with stronger data from the United States.
Speculation the Federal Reserve is set to unleash another wave of monetary easing faded, adding further pressure to gold, after comments from several Fed officials reinforced the notion they are happy to stand pat on policy.
Talk that further easing could be imminent, which would potentially undermine the dollar and keep interest rates low, has added significant support to gold this year.
Spot gold was down 0.6% at $1,652.20 an ounce at 1121 GMT, while US gold futures for June delivery were down $9.20 an ounce at $1,653.20.
The metal traded in its tightest monthly spread since last June in April and remains firmly within the $1,620-1,670 range, awaiting fresh impetus from the wider financial markets and economic indicators.
Jobs data at 1215 GMT will be closely watched as a precursor to a key non-farm payrolls report on Friday. A weak report would lift expectations for more monetary stimulus.
"With economic data throwing mixed signals, it is most likely that gold will continue to wobble in a narrow range, at least until there is clarity on the jobs front," Richcomm Global Services analyst Pradeep Unni said.
"In the near term, we need to break and hold above 1,676 for a quick spike to 1700," he added. "Pent-up buying would resume on any dips below 1,630. Worse than expected data on Friday will add acceleration to the uptrend."
A spate of more positive readings on the US economy has cut speculation the United States will extend quantitative easing to stimulate growth.
BNP Paribas cited waning expectations that quantitative easing is imminent in cutting its gold and silver forecasts for this year, by $140 to 1,715 an ounce and by $4.40 to $33.10 an ounce respectively.
"(Our economists') central scenario is now for further Fed monetary accommodation to be implemented only in the fourth quarter instead of June," it said.
"This change has significant implications for our gold price forecasts (and by extension for our silver price forecasts), given gold's tight positive relation with the level of market liquidity."
Physical demand soft
Gold prices have been held in check in the last month by a dearth of physical demand, with buyers in key jewellery consumer India deterred by high prices and a weak rupee, exchange-traded funds reporting outflows and coin sales easing.
Some appetite returned for gold coins in May, with the US Mint reporting sales of 10,000 ounces on the first day of the month, half the total sold in the whole of April. That was its worst month for gold coin sales since June 2008.
Holdings of the gold-backed exchange-traded funds monitored by Reuters, which issue securities backed by physical gold and which proved a popular investment during the financial crisis, fell 194,000 ounces in April and edged below 70 million ounces on Tuesday for the first time since February 2.
"As much as the remarkable resilience of gold ETF investment is testament to the ongoing positive sentiment among longer-term players, in our view there's no doubt that the buying has dried up," UBS said in a note on Wednesday.
"In the current lacklustre environment, the market needs more than just resilience - significant ETF buying will have to resume in order to breathe some life back into gold," it added. "Absent that resuscitating factor, we think gold is likely to continue its aimless wander."
Silver was down 1.2% at $30.58 an ounce. Its underperformance lifted the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, to 3-1/2 month highs.
Spot platinum was down 0.5% at $1,557.94 an ounce, while palladium was down 0.7% at $670.72.