Gold prices fell more than 1 percent to their lowest in nearly three months after minutes from the US Federal Reserve's March meeting suggested a fresh round of monetary stimulus was unlikely as the US economy gradually improves.
Ultra-loose monetary policy, which keeps real interest rates and consequently the opportunity cost of holding gold low, helped push the metal to record highs in 2011.
Expectations the Fed would instigate another round of quantitative easing sent prices above $1,790 an ounce in February.
But minutes of the central bank's latest policy meeting published on Tuesday showed only two of the policy-setting Federal Open Market Committee's 10 voting members saw the case for additional monetary stimulus.
"The minutes by the Fed indicated that there would be no quantitative easing unless the economy takes a dip for the worse- gold immediately sold off on that and now the dollar is stronger too, so that's weighing on gold," said Standard Bank analyst Walter de Wet.
"I wouldn't be surprised if we push lower towards $1,600 -that is what we think is a floor and we are unlikely to fall substantially below that," he said, adding that strong buying out of Asia was limiting the metal's losses.
Spot gold was down 1.2 percent at $1,625.30 an ounce at 1138 GMT, having earlier touched a low of $1,620.29, its weakest level since Jan. 10. US gold futures for April delivery were down $44.80 an ounce at $1,627.10.
De Wet said gold was likely to push higher longer-term and would probably rise above $1,900 towards the end of the year.
"We don't see real interest rates positive this year ... We still think globally that monetary supply will continue to grow- maybe not to the same rate as it did but certainly it's going to grow and these things are positive for gold.
Gains in the dollar exerted pressure on gold as the Fed minutes helped push the US unit to a two-week high against the euro on Wednesday. A stronger dollar tends to weigh on gold, which is priced in the US currency.
World stocks and oil both fell after the Fed dimmed hopes for more asset-buying.
