Gold steadied below a three-week high on Tuesday as escalating tensions in Iraq attracted some safe-haven bids, while investors waited for a Federal Reserve meeting this week before taking any big positions.
The Fed's two-day policy meeting begins later in the day with a statement expected on Wednesday. Markets are on the watch for any signals on when the central bank might begin raising interest rates.
Spot gold was little changed at $1,270.90 an ounce by 0316 GMT. The metal hit a three-week top of $1,284.85 on Monday before closing down 0.4 percent on profit taking.
"In the short run, worries of conflict might support gold prices, but with limited impact," said Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen.
Chen said she expects prices to fall towards the end of the year when talks of increasing rates gain momentum, just ahead of the expected ending of the Fed's bond-buying stimulus.
But for now, gold - considered a hedge against political uncertainties and riskier assets such as equities - is expected to draw support from the Iraq situation.
President Barack Obama considered options for military action to support Iraq's besieged government, while U.S. and Iranian officials held talks to stabilize the region, which has been roiled by the advance of Sunni rebels toward Baghdad.
Another supporting factor could be Russia cutting off gas to Ukraine on Monday in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbors.
Investor sentiment, however, was bearish as holdings of SPDR Gold Trust, the top gold-backed exchange traded fund, dropped 4.20 tonnes to 782.88 tons on Monday - near a five year low.