Picture used for illustrative purpose. File

Gold was set for its biggest monthly decline in nearly four years, led lower on Wednesday by a stronger dollar as caution returned to markets after the first US presidential debate.

Spot gold fell 0.6% to $1,885.81 per ounce by 0618 GMT, declining 4.3% so far in the month in what would be its worst monthly performance since November 2016. US gold futures were down 0.5% at $1,893.30.

The dollar index was up 0.1%, en route to its biggest monthly gain since July 2019, making gold more expensive for holders of other currencies.

"The dollar's post-debate gains foiled gold's latest attempt to hit the psychologically important $1,900 handle," said FXTM market analyst Han Tan, adding that the currency was investors' favoured safe-haven asset now.

But he said, "should investors grow more concerned over the prospects of a delayed outcome to the elections, the extended political uncertainty could offer the metal another leg up over the coming weeks." 

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The debate in Cleveland turned chaotic as President Donald Trump and Democratic rival Joe Biden battled fiercely over Trump's record on the COVID-19 pandemic, healthcare and the economy.

"Investors bought gold to hedge risk ahead of the presidential debate. Now that it has passed without incident, those hedges are being unwound," said Jeffrey Halley, a senior market analyst at OANDA.

Also taking some shine off gold was upbeat Chinese data on manufacturing and services activity as market participants tracked progress on a new US coronavirus relief bill.

"Gold has entered into a temporary consolidation phase but this may be a short-term correction in a long-term bull run, as we move towards a second US fiscal stimulus," said Margaret Yang, a strategist with DailyFx, which covers currency, commodity and index trading.

Silver fell 1.7% to $23.76 per ounce, platinum was down 1.9% at $867.72 and palladium was up 0.5% at $2,319.05.

Reuters