Wall Street and crude oil rallied on economic optimism. "You are seeing more confidence in the stock market on hopes that they are getting very close to getting a deal done, and that's why some of these assets which are defensive in times of uncertainty are selling off," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien.
However, gaps appear to remain between Democrats and Republicans on how to avert the automatic tax hikes and spending cuts set to kick in on January 1.
The White House rejected Boehner's "fiscal cliff" backup proposal, saying it fails to meet President Barack Obama's call for a balanced approach and does not put enough of a tax burden on the wealthiest Americans. Spot gold was down 1.2 percent at $1,676.71 an ounce by 12:13 pm EST (1713 GMT).
Earlier in the session, bullion hit $1,672.64, a 1-1/2 month low and within 40 cents of a 3-1/2-month low of $1,672.24 reached on August 31. On charts, Tuesday's drop sent spot gold's relative strength index (RSI) to 33, near an area below 30 which is traditionally seen as oversold territory. US COMEX gold futures were down $20.20 at $1,678, with volume set to finish near its 30-day average, preliminary Reuters data showed.
Silver also dropped 1.5 percent to $31.76 an ounce.