Gold prices fell on Wednesday, extending the previous session's retreat, as upbeat U.S. jobs data lifted the dollar and boosted the appeal of cyclical assets such as stocks at bullion's expense.
The dollar touched a one-month high versus the euro on Wednesday after data showed U.S. private employers added 238,000 jobs in December, the best read in 13 months.
That also added to pressure on gold by supporting expectations that the Federal Reserve will further scale back its ultra-loose monetary policy, a key driver of the record-high bullion prices seen in recent years.
Spot gold was down 0.7 percent at $1,223.40 an ounce at 1335 GMT, while U.S. gold futures for February delivery were down $6.30 an ounce at $1,223.30.
The metal is still up 1.8 percent this year after tumbling 28 percent in 2013, its first annual loss in 32 years, as the Fed geared up to taper its stimulus.
"The market probably got a bit carried away at the beginning (of the year), helped by the firm rejection of the lows on Dec. 31 and the news about strong Chinese demand, which now seems to have stabilised," Saxo Bank's head of commodity strategy Ole Hansen said.
"As we approach non-farm payrolls data on Friday traders will probably turn cautious again, considering the expectations for a continued improvement in the U.S. job market and thereby additional tapering over the coming months."
The non-farm payrolls are seen as a key indicator of the U.S. monetary policy outlook, given that the Fed has explicitly said it will await an improvement in the jobs market before it accelerates its tapering programme.
Traders are awaiting the release of the minutes of the Fed's latest policy meeting at 1900 GMT.
"We think we may see a lower move in gold prices ... in the aftermath of the Fed minutes," INTL FCStone said in a note.
"Although the complex rallied when the Fed initially made its tapering announcement, we don't think the precious metal will react in the same manner given that the initial move higher in the wake of the announcement was somewhat counterintuitive."
Physical demand from China, which is expected to have taken over from India as the world's No.1 gold consumer last year, slackened on Wednesday from this week's strong levels, dealers said.
Chinese consumers had been picking up gold at a brisk pace earlier this week ahead of the Lunar New Year celebrations at the end of this month, boosting premiums in the world's top buyer of the metal.
Premiums eased to $17 on Wednesday from over $20 seen earlier this week. Trading volumes on Monday hit their highest in eight months but have since slowed.
Among other precious metals, silver underperformed, falling 1.8 percent to $19.51 an ounce. Spot platinum was down 0.3 percent at $1,407.24 an ounce, while spot palladium was down 0.6 percent at $734.25 an ounce.
The gold:platinum ratio, which measures the number of gold ounces needed to buy an ounce of platinum, held near the previous session's 2-1/2 year high of 1.15 as gold prices retreated.