Gold eased on Wednesday after Italy indicated it was open to cutting its budget deficit and debt, soothing investors' nerves and prompting a wider move back into stocks and other riskier assets. Bullion was also pressured by a stronger dollar as economic data supported the view that the US economy is strong. Spot gold fell 0.4 percent to $1,198.11 per ounce at 1535 GMT, breaking below the key $1,200 level. US gold futures dipped to $1,202.20.
Stock markets around the world rose, with the Dow Jones Industrial Average opening at a record high, and Italian bonds rallied after signs that Rome would cut budget deficits and decrease its debt in the coming years. "With US equities hitting record highs here, the stickiness in equity prices will continue and the dollar strength will continue to materialise with what the US Federal Reserve is doing," said David Song, a currency analyst at DailyFX.
"Markets will continue to shun gold as we don't have any incentive really to park money as we are seeing interest rates going up." A strong dollar makes gold more expensive for holders of other currencies, while rising interest rates increase the opportunity cost of holding non-yielding bullion.
Gold prices have fallen for six months, shedding some 11 percent, largely due to the dollar's strength. The US currency has benefited from a vibrant economy, rising US interest rates and fears of a global trade war.
"What the market is looking for is confirmation for underlying strength of the US economy," said Suki Cooper, precious metals analyst at Standard Chartered Bank, adding investors will now watch Friday's US non-farm payrolls data.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 185,000 in September after jumping 201,000 in August.
On the technical front, the gold market is "consolidating sideways", Commerzbank analysts said in a weekly note.
"It is not clear whether this is going to be a continuation phase or is in fact a possible base developing. It has started to erode the 55 day moving average and attention is on the four-month downtrend at $1,213.57."
Meanwhile, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.32 percent to 23.72 million ounces on Tuesday.
Among other precious metals, silver edged 0.1 percent higher to $14.65 per ounce, hovering close to the previous session's $14.91, its highest in more than a month. Platinum climbed 0.5 percent to $831.30, while palladium rose 0.9 percent to $1,060.60.