Spot gold was flat at $1,810.71 per ounce by 12:00 p.m. EDT , while U.S. gold futures fell 0.2% to $1,811.20.
Bullion had jumped more than 1% to push towards $1,830 earlier in the session after weaker than expected ADP jobs data.
But offsetting the jobs data, was the Institute for Supply Management's non-manufacturing activity index which raced to its highest reading in the series' history last month.
"Given that the Fed said they're going to look at economic data and maybe cut back on asset purchases come September or November, strong data like the PMI helps their cause to start cutting back" Bob Haberkorn, senior market strategist at RJO Futures.
Such concerns were also likely fuelled by comments from U.S. Federal Reserve Vice Chair Richard Clarida suggesting the central bank could start cutting back on bond purchases later in the year.
Benchmark U.S. 10-year yields rose off their low following Clarida's comments, reducing the appeal of non-yielding bullion. The U.S. dollar too recovered, further reducing gold's appeal.
Market focus now shifts to Friday's U.S. non-farm payroll report with economists in a Reuters poll forecasting a 926,000 increase.
"Today's ADP numbers give us a clue on what non-farm payroll numbers could be like. So if we see another miss on Friday, it will be less likely that the Fed will start their tapering process and gold should remain strong," Haberkorn added.
Elsewhere, silver was down 0.6% at $25.40 per ounce, after hitting a three-week high earlier in the session.
Platinum fell 1.9% to $1,029.56 per ounce, while palladium rose 0.1% to $2,650.61.
(Reporting by Brijesh Patel and Nakul Iyer in Bengaluru; Editing by Kirsten Donovan)
By Nakul Iyer