LONDON (Reuters) - Gold prices fell on Wednesday as renewed hopes that U.S. President Donald Trump will unleash growth-friendly spending policies boosted shares and eroded bullion's safe haven attraction.
Spot gold had fallen 0.4 percent to $1,204.21 per ounce by 1122 GMT while U.S. gold futures shed 0.6 percent to $1,204.
Investors turned their attention to world stocks, which hit a 19-month high, lifted by strong Japanese trade data, stellar European company earnings and hopes that Trump will press ahead with a large fiscal spending package.
"The combination of higher bond yields and higher stocks are outweighing the marginally weaker U.S. dollar and in turn is causing the loss in gold today," said Carsten Menke, research analyst at Julius Baer in Switzerland.
Moves by Trump on oil pipeline projects on Tuesday boosted U.S. equity markets and weighed on the dollar index, which was down 0.3 percent at 100.03 on Wednesday morning after having slipped below 100 for the first time since early December.
A softer dollar makes commodities priced in the U.S. currency cheaper for buyers using other currencies and usually boosts gold.
Menke, who expects the dollar to rebound and pressure gold in coming weeks, has pegged a three-month price target of $1,075.
"We also have an improving local growth backdrop, which does not bode well for safe haven demand, so we would expect outflows from the physically-backed products to resume and to put further pressure on gold," he added.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.37 percent to 804.11 tonnes on Tuesday from 807.07 tonnes on Monday.
Gold hit two-month highs earlier in the week and has rallied about 8 percent since mid-December, fuelled by worries over Trump's policies. Gold is often seen as a safe-haven investment in times of geopolitical and financial uncertainty.
Gold may also be pressured due to lower demand linked to China's Lunar New Year festival which begins on Friday, traders said.
"(Gold was) unable to capitalise on a softer dollar with Chinese physical demand beginning to wane as we head ever closer to the New Year holiday period," MKS PAMP Group trader Sam Laughlin said in a note.
"Gold prices have moved higher since the beginning of the year and need some technical correction in the very short-term," said Jiang Shu, chief analyst at Shandong Gold Group, adding gold might test $1,185 during the Lunar New Year.
Silver dropped 1.1 percent to $16.90.
Platinum fell 0.6 percent to $989.74, after hitting its highest since Nov. 10 in the previous session.
Palladium shed 0.6 percent to $781.60. It had marked its strongest in more than 1-1/2 years the day before.
(Additional reporting by Nallur Sethuraman and Arpan Varghese in Bengaluru; Editing by Adrian Croft)