Investors also lessened their bullish bets ahead of Wednesday's Fed Open Market Committee policy statement. The US central bank is expected to announce monthly bond purchases of $45 billion, on top of the $40 billion in mortgage-backed security purchases it announced in September. "The big money is waiting to see what the news is with the FOMC before making their move. Gold is becoming less liquid as there are less bids out there near the year end," said Miguel Perez-Santalla, vice president of online precious-metals exchange BullionVault.
Spot gold was down 0.2 percent at $1,707.70 an ounce by 2:16 pm EST (1916 GMT). US COMEX gold futures for February delivery settled down $4.80 at $1,709.60 an ounce, with volume at 60 percent below its 30-day average, preliminary Reuters data showed. Gold prices initially rose with equities on optimism that ongoing talks between Boehner and President Barack Obama were enough to avoid tax hikes and spending cuts which could send the United States back into a recession.
Other traders said the gold market has already factored in expected Fed stimulus on Wednesday, and a disappointment could trigger a sell-off. Silver was down 1 percent at $32.85 an ounce. Despite Tuesday's pullback, physical bullion demand remained strong, particularly in China, one of the world's top bullion consumers. Gold premiums in Hong Kong rose to their highest in about five months on Tuesday as Chinese banks stocked up on bullion to avoid a supply crunch when refineries close shop for the year-end holidays.
In South Africa, gold output nearly halved in October from the same period last year, highlighting the impact of violent strikes that swept the mining sector. Among platinum group metals, platinum rose 0.9 percent to $1,632.30, while palladium was down 0.9 percent at $690.20, after it has risen around 15 percent in the last month, outstripping gains in other precious metals.