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Gold prices fell on Wednesday, after a steep rise in the previous session, as a flight to cash offset optimism around the US government agreeing on a massive stimulus package to ease the economic burden of the coronavirus pandemic.

In volatile trade, spot gold fell 1% to $1,594.18 per ounce by 0743 GMT, after rising as much as 1.6% earlier in the day. The metal jumped more than 3% on Tuesday.

US gold futures climbed 0.2% to $1,664.80.

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"The recent development in gold prices has nothing to do with fundamentals, it (the metal) has de-linked from its safe-haven status... We are in unprecedented times and nothing can be justified," said CMC Markets analyst Margaret Yang Yan.

"Investor sentiment remains very fragile and cautious, and 'cash is king' is still on top of people's mind, so the volatility is likely to persist," she said, adding that there was some shortage of physical supply to fulfil the futures market's obligations.

Benchmark spot gold prices continued to trade below US gold futures in a sign that the market is worried air travel restrictions and precious metal refinery closures will hamper shipments of bullion to the United States to meet contractual requirements.

Investors were in two minds — whether to go for the safety of gold or liquidate positions to cover losses on other commodities and seek refuge in hard cash, said John Sharma, an economist at National Australia Bank, adding that initial expectations for the U.S. stimulus package had supported gold.

US Senate Majority Leader Mitch McConnell attends a meeting to discuss an economic bill in Washington. File/AFP

US Senate majority leader Mitch McConnell said the fiscal stimulus package, expected to be worth $2 trillion, had been agreed upon and would be put to a vote later on Wednesday.

The virus had infected nearly 421,000 people across the world by Wednesday, and has forced widespread lockdowns to combat the spread.

Indicating investors' appetite for gold, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 1.3% to 935.98 tonnes on Tuesday.

Among other precious metals, palladium climbed 1.9% to $1,968.80 per ounce, while platinum gained 2.6% to $726.61.

Both the metals surged more than 10% in the previous session on the back of a lockdown in major producer South Africa.

Silver rose 0.8% to $14.38 per ounce.

Reuters