London: Gold fell below USD 1,300 an ounce on Tuesday as the market focused on the U.S. Federal Reserve`s policy meeting and expectations for strong U.S. data, though losses were limited by uncertainty over the situation in Ukraine.
The Fed starts a two-day policy meeting later on Tuesday and is expected to reduce its monthly bond purchase programme for the fourth time in a row and to provide guidance on when it might raise interest rates.
Spot gold fell 0.4 percent to USD 1,290.10 an ounce by 1019 GMT. Prices touched a near two-week high of USD 1,306.11 on Monday on escalating geopolitical worries before cutting gains on signs of a strengthening U.S. housing market.
U.S. gold futures for June delivery fell 0.7 percent to USD 1,290.60 an ounce.
"Rumbling in the background there are still tensions between Russia and the West over Ukraine ... but we are seeing some pre-selling ahead of the FOMC (Federal Open Market Committee meeting) and the non-farm payrolls," Societe Generale analyst Robin Bhar said.
"These are both expected to be generally upbeat on the economy ... therefore that is going to be bearish for gold."
A strong economy could mean that the Fed could quicken its path towards a tighter monetary stance.
Loose monetary policy, coupled with prolonged low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been important factors driving gold higher in recent years.
In the latest sign that the economy is recovering well, data on Monday showed contracts to buy previously owned U.S. homes rose in March for the first time in nine months.
The next market focus will be U.S. non-farm payrolls data for April, scheduled for release on Friday.
However, traders remained cautious in expectation of further developments in the Ukrainian crisis.
Russia criticised the European Union on Tuesday over new sanctions imposed on Russian officials, saying the EU was following Washington`s lead and should be ashamed of itself.
Gold has gained some strength over the past few weeks from investors stepping up demand as they seek refuge from riskier assets amid the political troubles.
WEAK CHINESE DEMAND
In the physical markets, data showed that China`s gold purchases via main conduit Hong Kong fell to a four-month low in March as a weaker yuan and domestic prices below the global benchmark kept banks from importing.
Shanghai prices have now recovered to a premium of about USD 1 an ounce but far below the USD 20 premiums seen earlier in the year, indicating demand still remains weak.
An increase in physical demand across Asia could at least provide a floor for falling gold prices.
Among other precious metals, silver was down 0.9 percent to USD 19.38 an ounce. Spot platinum fell 0.3 percent to USD 1,412.50 an ounce while spot palladium lost 0.5 percent to USD 794.50 an ounce.
