LONDON Gold prices fell on Tuesday to a new three-week low, bringing losses since the start of the week to more than one percent, as demand for riskier assets drove stocks higher and the dollar hit a six-week peak against the yen.
"Risk appetite is back," said Societe Generale analyst Robin Bhar.
Rising share prices increase the opportunity cost of holding non-yielding bullion, while a stronger dollar makes gold more expensive for holders of other currencies.
Spot gold was down 0.2 percent at $1,254.01 an ounce at 1433 GMT, having earlier hit $1,251.37 an ounce, the lowest since April 10. U.S. gold futures were flat at $1,255.60 an ounce.
Gold on Monday fell 0.9 percent after U.S. lawmakers agreed on a spending package to avert a U.S. government shutdown and the Nasdaq share index reached a record high.
The market's so-called fear gauge, the VIX volatility index, has meanwhile fallen to its lowest since 2007.
Gold has slipped 3 percent since a mid-April high and is hovering just above its 200-day moving average, currently at around $1,252 an ounce.
Analysts said a move below that key technical level would unleash selling as fund investors reduced a long position that has risen to the largest in 5 1/2 months.
Gold was likely to move towards its 400-day moving average of $1,224, technical analysts at ScotiaMocatta said in a note.
Investors were looking ahead to the outcome of a two-day U.S. Federal Reserve policy meeting to be announced at 2 p.m. EDT (1800 GMT) on Wednesday and employment data that will indicate the speed of U.S. economic growth.
"If the Fed signals further rate increases and shrinking of the balance sheet tomorrow and then we get a good jobs number on Friday we should certainly end the week below $1,250, and maybe closer to $1,240," said Societe Generale's Bhar.
Higher interest rates would cause U.S. bond yields to rise, making non-yielding gold less attractive.
In other precious metals, silver was down 0.3 percent at $16.78 an ounce, after earlier touching $16.76, its lowest since Jan. 27.
Platinum was 0.3 percent lower at $921.55, near four-month lows.
Palladium was up 0.2 percent at $816.35. The metal used in the automotive industry for emission-controlling catalytic converters is near a two-year high, but car sales are too weak to sustain it, said Julius Baer analyst Carsten Menke.
"Prices have decoupled from fundamentally justified levels and it is time to sell the rally," Menke said, predicting that prices could fall to $700 over the next three months.
(Additional reporting by Swati Verma in Bengaluru; Editing by Susan Fenton and Edmund Blair)