Gold fell on Thursday as a rise in the dollar and mixed U.S. economic indicators prompted investors to take profits after gains in the previous session.
In U.S. economic data on Thursday, contracts to buy previously owned homes fell for a third straight month in August, while fewer Americans filed new claims for jobless benefits last week - conflicting signals on the health of the economy.
Meanwhile, Republicans in the U.S. House of Representatives refused to give in to President Barack Obama's demands for straightforward bills to keep the government running beyond Sept. 30 and to increase the government's borrowing authority to avoid default.
Bullion rose almost 1 percent on Wednesday on continued safe-haven buying spurred by uncertainty over whether U.S. lawmakers would be able to agree to a spending bill before next Tuesday to avert a government shutdown. Analysts said, however, that gold's gains on U.S. budget talks were likely to be temporary.
"Gold could receive a bid over the short term as worries rise over the debt ceiling talks, but we doubt whether this variable alone will be enough to keep the complex elevated for long," said Edward Meir, metals analyst at futures brokerage INTL FCStone.
Spot gold was down 0.8 percent at $1,322.40 an ounce at 3:11 p.m. EDT (1911 GMT).
U.S. Comex gold futures settled down $12.10 an ounce at $1,324.10, with trading volume in line with its 30-day average, preliminary Reuters data showed.
For the third quarter, gold is on track to rise 7 percent after a record 23 percent decline in the second quarter.
DEBT CEILING, FED TAPERING EYED
Two years ago, the first U.S. debt ceiling crisis helped push gold to a record $1,920 an ounce in September 2011. The crisis was resolved at the last minute.
Investors continued to watch U.S. economic numbers to determine whether the U.S. Federal Reserve could begin reducing bond purchases this year.
Bullion gained more than 4 percent last week after Fed chief Ben Bernanke refused to commit to starting a reduction in quantitative easing this year, defying expectations for a $10 billion cut to the Fed's $85 billion monthly bond-buying stimulus.
Uncertainty over the timing of the Fed's next move has led to choppy trading over the past few sessions.
Among other precious metals, silver fell 0.5 percent to $21.65 an ounce, platinum dropped 1.5 percent to $1,404.50 an ounce, and palladium inched down 0.2 percent to $718.75 an ounce.
(By Frank Tang and Clara Denina; Additional reporting by A. Ananthalakshmi in Singapore; Editing by Pravin Char, Peter Galloway and John Wallace)