Gold fell for the third session in a row on Tuesday as the return of relative calm in Europe after a deal to bailout Cyprus' banks eased market fears and better U.S. factory and housing data pointed to an improving economy.
The metal came under pressure as Wall Street climbed after data showed U.S. single-family home prices rose in January at the fastest pace in more than six years. U.S. durable goods orders showing demand for long-lasting manufactured products also rose in February.
Trading volume was heavy for a second straight day as investors digested the headlines out of Europe and longer-term market repercussions after the Cyprus rescue plan.
"The Cyprus support is not there anymore and the U.S. data, which on balance has been quite good today, is also being a drag for the market," HSBC analyst James Steel said.
Spot gold was down 0.4 percent at $1,598.30 an ounce.
U.S. gold futures for April delivery settled down $8.80 at $1,595.70 an ounce.
Trading volume was about 65 percent above its 250-day average, partly due to the April-June contract rollover and increased market volatility on renewed euro worries.
Bullion prices, however, were on track for their first monthly gain - up around one percent so far in March - after posting declines in every month since October. Hopes of prolonged Federal Reserve stimulus and resurgent euro-zone debt fears boosted gold's safe-haven appeal.
The European Central Bank on Tuesday sought to quash suggestions that the plan agreed between Cyprus and the European Union could shape future bank rescues in the bloc, insisting Cyprus was a unique case.
Gold had pared losses on Monday after the head of Eurogroup said the Cyprus bailout, which involves imposing hefty levies on some Cypriot bank deposits, represented a new template for resolving euro zone banking problems in the future.
"Gold is finding it difficult to take its cue from other markets where sentiment remains confused at best in light of the European situation and Cyprus rescue plan," TD Bank precious metals strategists said in a note.
Central Bank Interest Remains, Bearish Forecasts
Underpinning gold prices was news that Russia increased its gold holdings for the fourth straight month in February, and a number of central banks in emerging economies also added gold to their official reserve, underscoring central banks' appetite for gold.
CPM Group, a commodities research and consultant, said in a report Tuesday that the average price of gold is expected to fall in 2013 for the first time in 11 years as fading fears of catastrophic market events prompt investors to scale back bullion purchases.
The bearish call by CPM Group echoes those from top bullion banks which have recently slashed their gold forecasts, citing an improving U.S. economic outlook and a possible end to the Federal Reserve's bond-buying program.