Gold fell early Tuesday as investors chose riskier assets such as equities after Russian President Vladimir Putin's latest comments eased tensions in Ukraine. Wall Street rallied for a second day, with the S&P moving within 1 percent of record levels after Putin signed a treaty on Tuesday making Crimea part of Russia again but said he did not plan to seize any other regions of Ukraine.
"There is some easing of tensions, so some speculative money is going out of precious metals now," said Robbert van Batenburg, director of market strategy at brokerage Newedge. Bullion, however, should be supported by a nascent technical breakout and any future spike in global macroeconomic risk including uncertain growth in China, van Batenburg said.
Investors also awaited a closely watched policy statement from the US Federal Reserve. Janet Yellen's first policy-setting meeting as Fed chair will focus on how to finesse a rewriting of the central bank's promise to keep interest rates low without roiling financial markets. Spot gold was down 0.6 percent an ounce at $1,358.79 by 2:41 PM EST (1941 GMT). The metal rallied on Monday to a six-month high at $1,391.76 before investors started to cash in profits.
US COMEX gold futures for April delivery settled down $13.90 at $1,359, with trading volume in line with its 30-day average, preliminary Reuters data showed. Bullion also came under pressure after data showed US inflation was muted in February and housing starts fell for a third straight month. Some gold investors took profits after the metal gained 3 percent last week due to China's first corporate bond default and fears of slowdown in the world's second-largest economy.
"I think gold will hold above $1,350 as it formed a base because of the Eastern European dilemma," said Miguel Perez-Santalla, vice president at online precious metals market BullionVault. "And China's possibly going to face an internal financial and credit crisis is an important underlying concern for investors," he said. Traders were now awaiting the US Federal Reserve's two-day policy meeting starting later on Tuesday.
The US central bank is expected to stick to reducing its monthly asset purchases by an additional $10 billion, so the impact of such a decision on gold could be limited. A series of US economic data showing growth has been hurt by severe cold weather in the first two months of the year had hit the dollar, in turn bolstering gold. In other precious metals, silver fell 1.6 percent to $20.80 an ounce. Platinum was down 0.3 percent at $1,455.25 an ounce and palladium dropped 0.6 percent to $764.80 an ounce.
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