The selling erased early gains that occurred amid optimism for a European Union aid package for Spain.

Bullion weakened after PFGBest late on Monday told customers their accounts had been frozen. An US industry body said about $220 million in customer funds were not in the brokerage's bank accounts.

US investment bank Jefferies Group said on Tuesday it has started to liquidate trading positions of PFGBest.

Gold rose 1 percent early after EU ministers agreed to provide aid to ailing Spanish lenders. They set a maximum of 100 billion euros ($123 billion) of which some 30 billion euros would be available by the end of July if there was an urgent need.

"With the 100 billion euro being made available to Spanish banks, gold should not be lower," said George Nickas, commodities broker at INTL FCStone.

"If Jefferies is doing an orderly liquidation, you have to believe that there have to be some concerns about 'Do I let the positions go? You've got a higher degree of emotions now in a quiet market," Nickas said.

Also weighing on gold were losses in the grains and energy markets as investors shed riskier assets due to the PFGBest news.

Spot gold inched down 35 cents on the day at $1,586.30 an ounce by 12:04 p.m. EDT (1604 GMT), having hit a session high of $1,600.90 earlier in the day.

US COMEX August gold futures were down $2.70 at $1,586.40 an ounce.

In other precious metals, silver fell 1 percent to $27.08 an ounce. Platinum was down 0.6 percent at $1,430.63 an ounce and palladium eased 0.4 percent to $576.43.