Gold fell as the dollar strengthened and demand for safe-haven assets waned, with investors also weighing the prospect of improving trade relations between the U.S. and the European Union.

Bullion fell 1.5% as signs that Japan may be ready to adjust its debt issuance boosted global bonds and the U.S. currency. A stronger dollar makes gold more expensive for buyers in other currencies, while lower yields on non-interest-bearing debt reduce the appeal of the precious metal.

Investors are also less fearful of risk as the EU and U.S. signaled a willingness to end a standoff and work toward a trade deal over the next six weeks, in the first major thaw in their frosty economic relations since President Donald Trump's second term began in January.

Demand for safer assets such as bullion has been hit by signs that the White House may be making progress in negotiations with some trading partners. Gold-backed exchange-traded funds have posted outflows for five straight weeks since their holdings peaked at their highest in more than a year in mid-April, according to Bloomberg calculations.

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But the market remains in wait-and-see mode, assessing a number of risks including the ballooning U.S. deficit, ongoing trade talks and worsening conflicts in the Middle East and Ukraine.

Gold has gained more than a quarter this year, though prices are currently trading about $200 below an all-time high set last month.

Investors are also gearing up for the Federal Reserve's preferred inflation measure, the U.S. personal consumption expenditures price index excluding food and energy, due on Friday.

Spot gold fell 1.5% to $3,294.73 an ounce as of 10:46 a.m. in London. The Bloomberg Dollar Spot Index rose 0.5%. Platinum extended its decline after hitting a two-year high last week on signs of market tightness. Silver and palladium also fell. (alg)

Source: Bloomberg