Gold backtracked on Wednesday from a near two-week high in the prior session as the dollar rebounded and strong US manufacturing data raised hopes of a swifter global economic recovery. Spot gold fell 0.7 per cent to $1,957.15 per ounce by 1133 GMT (5:03 pm in India), after hitting its highest since August 19 at $1,991.91 per ounce on Tuesday. US gold futures dropped 0.6 per cent to $1,966.70 per ounce.
Gold is being weighed down by the rise in equity markets and the dollar, but "it's not very surprising that investors will take a little bit of profit" after Tuesday's rally in gold, said Commerzbank analyst Eugen Weinberg.
"However, besides other strong fundamentals like weak economy and lower interest rates, Australian and US mints reporting very high demand for gold coins will take gold above $2,000 in the long run."
The dollar index rebounded from a two-year low after data revealed that manufacturing activity in the US increased more than expected in August, which followed similar positive indicators this week from China and Europe.
A stronger greenback makes gold expensive for holders of other currencies.
The robust data also boosted equity markets.
Nonetheless, expectations that US interest rates would stay low for longer under the new monetary policy approach from the Federal Reserve put a floor under gold prices.
Low interest rates reduce the opportunity cost of holding non-yielding bullion, also viewed as a hedge against inflation and currency debasement.
On the physical side, although overall consumption remained weak, especially in top buyer China, gold sales from Australia's Perth Mint rose threefold year-on-year in August, while India saw imports jump, pointing to a gradual recovery.
Meanwhile, Turkey's gold imports surged four-fold as Turks scrambled to hedge against record drops in the lira currency.
Elsewhere, silver dipped 2.1 per cent to $27.58 per ounce, platinum slipped 1.2 per cent, to $929.94, and palladium fell 1 per cent to $2,248.72.