Gold dropped for a third consecutive session on Tuesday to its lowest in almost two weeks, with investors focused on the upcoming US Federal Reserve policy meeting.
A rise in global equity markets over the past few days has provided headwinds to the gold market, which has gained around 16 per cent this year.
The yen advanced against the dollar and Asian stocks languished near the day's lows on Tuesday, after the Bank of Japan held policy steady as expected and offered a bleaker view of the country's economy in the face of lingering anxiety over slowing global growth.
Spot gold dropped 0.5 per cent to 1,228.56 an ounce by 0649 GMT, while US gold slid 1.3 per cent to $1,229.10 an ounce. Spot gold earlier in the session fell to $1,225.70 an ounce, its lowest since March 2.
"We are waiting for the outcome of the Fed meeting and data coming from the United States is showing that the state of the economy is not bad," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd.
"I think there are too many long positions in the market. They are taking some profit."
The Fed's two-day policy meeting will start on Tuesday and be watched for clues on the future pace of US rate increases.
Further US rate hikes could lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The metal has risen 16 per cent this year as expectations for further near-term hikes faded.
The Bank of Japan kept monetary policy steady but offered a bleaker view on the economy and warned of waning inflation expectations, signalling that global headwinds that may justify deploying yet more stimulus ahead.
The weak move in gold over the last two sessions followed Friday's brief bounce to a 13-month high after the European Central Bank signalled an end to rate cuts and the euro rose sharply versus the dollar. Gold is highly sensitive to monetary policy and resulting currency moves.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.08 per cent to 790.14 tonnes on Monday from 798.77 tonnes on Friday. In terms of ounces, holdings fell to 25,403,927 ounces from 25,681,155.
Hedge funds and money managers increased their bullish COMEX gold position to the highest in 13 months in the week to March 8, the eighth increase in the last nine weeks, data showed on Friday.