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Spot gold was down 1.7% to $1,866.71 per ounce by 11:30 a.m. EDT. US gold futures also fell 1.8% to $1873.00 per ounce in New York.

Meanwhile, more positive US economic data and concerns over surging coronavirus infections in Europe pushed the dollar index to an eight-week high, dimming the appeal of bullion as an alternative.

“As long as we see strength in the dollar, then undoubtedly we are also going to see gold struggle,” Saxo Bank analyst Ole Hansen told Reuters, adding that the break below $1,900 sparked some nervousness and short-selling in the market.

Gold has turned “passive”, having priced all of the favorable factors already, and now needs inflation to emerge and a weaker dollar to attract renewed demand, Hansen said.

Earlier this week, Chicago US Federal Reserve President Charles Evans also weighed in on sentiment by weakening inflation expectations and lifting US real yields, stating that interest rates could be raised before inflation reaches its target average of 2%. Non-yielding gold is often seen as a hedge against inflation and currency weakening.

“We are also seeing a slight pessimism about US fiscal stimulus and that has probably curbed inflation expectations just a little bit,” IG Markets analyst Kyle Rodda said.

“The market is still expecting policy changes that could bolster gold over time but that is a longer-term view,” Rodda added.

Election boost
On Tuesday, analysts at Citigroup said gold could still hit a record before the end of the year, aided in part by the risks surrounding the US presidential election.

Uncertainty over the contest and delays about the outcome may “be under-appreciated by precious metals markets,” analysts including Aakash Doshi said in a quarterly commodities outlook. The bank’s forecast implies a surge of more than $200 for bullion futures from current levels.

Gold rallied to an all-time high in August as investors sought safe havens amid the covid-19 pandemic, but prices have slipped back since. Citi’s outlook reflects the growing uncertainties as the battle for the White House heats up.

The election “could be an extraordinary catalyst for gold flat price and volatility skew late in the fourth quarter, even though historically there is no clear pattern for gold trading or price volatility into and after US elections,” Citi said. “That is one reason why we expect gold prices to hit fresh records before year-end.”