Gold fell on Wednesday as a rally in assets seen as higher risk, such as equities, prompted some investors to cash in gains sparked the previous day by Fed chair Janet Yellen's cautious tone on further rate hikes. Yellen's signal that interest rates will likely rise only gradually reassured gold investors, as higher rates boost the opportunity cost of holding non-yielding assets like bullion.
The metal remains on track for its best quarter in nearly 30 years, up 16.4 percent, after prices rallied sharply earlier in the year as worries about economic growth, particularly in China, shook up stock markets.
Consequent demand for safe havens, combined with receding expectations for further US Federal Reserve rate hikes, have driven gold up more than 16 percent since January, making this its strongest quarter so far since the third quarter of 1986.
Spot gold was at $1,232.63 an ounce at 1330 GMT, down 0.7 percent, having risen 1.7 percent on Tuesday after Yellen's speech. US gold futures for April delivery were down $2.40 an ounce at $1,235.10.
"There was quite a big move yesterday from $1,220 to $1,240, which was really in line with what Yellen said. You had dollar weakness, but the gold move was stronger, which suggests some genuine interest in gold," Julius Baer analyst Carsten Menke said.
"But overall, the strength in gold has also been driven by global growth fears, and this is slowly ebbing as market participants get less afraid about the global economy. In the equity market today, prices are up again. The weakness in gold we're seeing today is a mirror image of the positive mood in financial markets overall."
World stocks climbed near the highest levels this year on Wednesday as investors rolled back expectations for how fast and how far US interest rates might rise.
Holdings of the world's biggest gold-backed exchange-traded fund, SPDR Gold Shares, declined for the first day in two weeks on Tuesday, by 3.3 tonnes.
Focus is now shifting to the main US jobs data later this week.
"Though the rally looks intact it can be dented by a good employment number in the non-farm payrolls release for March scheduled for Friday," HSBC said in a note. "A number above 200,000 new net jobs could wear on gold and clip recent gains."
Among other precious metals, silver was flat at $15.34 an ounce, platinum was up 0.7 percent at $974.17 an ounce and palladium was down 0.3 percent at $571.39 an ounce.