The metal fell for the first time in the last three sessions, after the European Commission said consumer morale in the euro zone improved sharply in January. Reuters polls also showed that the world economy should perform slightly better this year on recovering Asian growth.
"I don't think there is any reason for investors to own gold any more as the economy is turning around," said COMEX gold options floor trader Jonathan Jossen.
Jossen, however, said there is definitely strong buying interest and dip-buying has underpinned the price of gold, and that kept gold from dropping further.
Despite Wednesday's pullback, gold is on track for a fourth consecutive weekly gain, its longest weekly winning streak since September.
Spot gold fell 0.3 percent to $1,685.54 an ounce by 12:52 p.m. EST (1752 GMT). It hit a one-month high of $1,695.76 in the previous session but failed to retain upward momentum on lower investment demand and technical resistance.
US COMEX gold futures for February delivery were down $7.20 at $1,686 an ounce. Trading volume was on track to finish in line with its 250-day average, preliminary Reuters data showed, partially boosted by February-April contract rollover. "We can see rather lacklustre interest for gold right now, with investors withdrawing some money from the gold market," as the global economy shows signs of improvement, said Tobias Merath, global head of commodity research at Credit Suisse.
Bullion holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, was up 0.3 percent as of Tuesday. However, it has seen an outflow of nearly 15 tonnes so far this year.
Gold stalled below $1,700 an ounce in early January and has struggled to break through key resistance at the 50-day moving average of $1,690, which has capped prices for the last five sessions, frustrating buyers.
INDIAN BUYING SLACKENS
Demand in the physical gold market remained strong in most of Asia, but buying by major bullion consumer India was expected to pause in the next few days while the government provides details on tax changes this week, analysts said.
The Indian government lifted the import duty on refined gold to 6 percent from 4 percent and more than doubled the import duty on gold dore bars and ores.
On silver, a strong inflow into silver-backed exchange-traded funds has helped spot silver prices rally more than 6 percent so far this year.
Holdings of iShares Silver Trust, the world's largest silver ETF, was up nearly 6 percent versus the end of 2012.
Spot silver rose to a five-week high of $32.44 an ounce, extending its rally to a seventh day. It was last up 0.3 percent at $32.30.
Among platinum group metals, spot platinum was down 0.4 percent to $1,686.24, while palladium edged up 0.1 percent to $724.97, after the PGMs rallied last week on the back of output cuts in South Africa and better hopes for auto demand.