Gold closed down 1.6 percent as investors took profits from recent gains and put their confidence in the head of the U.S. central bank whom they hope will use a speech later this week to signal support for the ailing American economy.
Gold fell 1.6 percent to $1,861.30 an ounce. Silver also declined, sliding 2.5 percent to settle at $42.291.
Reports on China's factory sector and German business activity pointed to slowing growth but weren't as weak as some had feared.
These pockets of good news from Asia and Europe suggest that the wave of bad news that had been expected isn't coming forth like people had been worried about, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Conn.
Meanwhile, fresh data showed the U.S. housing sector was weaker than expected. It was the latest in a string of discouraging reports that some investors speculate will spur the Fed to take stimulative measures.
The data today has raised hopes about the Fed's actions and after four straight days of losses and a flat market yesterday, people are willing to jump at buying opportunities, said Larry Peruzzi, senior equity trader at Cabrera Capital markets in Boston.
Silver also declined, losing 2.4 percent to $42.291 per ounce.
Analysts' comments indicated that Wall Street did not take Tuesday's action as the beginning of a new trend.
Even if a $150 or more pullback (in gold) were to materialize, we'd strongly view it as a good buying opportunity, Edel Tully, UBS strategist, said in a note.
Quite simply, we think there are more than enough gold friendly macro variables out there. While our economists do not see sufficiently compelling evidence to merit a recession forecast, they do see increased downside risk to the outlook from recent events. And importantly, with the threat of intervention in both the Swiss franc and the Japanese yen high, gold is attracting additional safe-haven flows.