Gold settles lower at $1,324, all eyes on Fed meeting

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Gold inched lower in quiet trading on Tuesday as participants largely stayed on the sidelines ahead of a Federal Reserve policy statement on Wednesday that may provide clues on the pace at which it plans to scale back its bond-buying program.

Bullion pared earlier losses on signs the U.S. economy may be slowing as data showed home prices in May rose less than expected and consumer confidence waned in July.

The Fed is scheduled to release a policy statement Wednesday afternoon after its two-day meeting. Traders will be looking for clues as to when the U.S. central bank will start tapering its $85 billion monthly bond purchases.

Gold plunged 5 percent after the Fed's June meeting when it gave its most explicit signal yet that it plans to wind down the era of easy money. However, Fed chief Ben Bernanke's subsequent remarks about the need to keep a stimulative policy in place given low inflation and an uncertain market triggered a gold rally.

"If Bernanke comes out and specifically indicates that there is underlying weakness in the jobs market, then I think gold is going to go much higher," said Jeffrey Sica, chief investment officer at Sica Wealth, which manages over $1 billion in client assets.

(Read more: Gold bugs: Time for 'ugly duckling' to shine?)

Spot gold was down 58 cents to $1,326.41 an ounce, having traded in a narrow $10 range.

U.S. gold futures for August delivery settled down $4.40 to $1,324 an ounce, with trading volume about 20 percent below its 30-day average, preliminary Reuters data showed.

Fed officials are likely to have a lively debate on how best to prepare financial markets for a reduction of their bond-buying program but appear certain to wait for further economic data before curtailing their stimulus.

Gold moved above $1,300 last week for the first time in a month on Bernanke's comments that any reduction in bond purchases was not set in stone and depended on the strength of the economy.

The Fed previously said it was likely to begin reducing its stimulus program later in 2013 and halt it altogether by mid-2014.

Gold / US Dollar Spot

India imports halted, Einhorn bullish

In the physical market, India's imports of gold have halted since July 22, sending premiums for scarce stocks soaring, as traders in the world's biggest bullion buyer try to puzzle out new central bank rules that tie imports to export volumes.

David Einhorn, head of hedge fund Greenlight Capital and a long-time gold bull, said his optimism about gold "has not changed" and that his investment portfolio now had an equal exposure to gold miners and gold bullion.

Analysts said gold may have a choppy ride for the rest of the week because of policy meetings at the European Central Bank and the Bank of England later this week, and the all-important U.S. jobs report for July due on Friday.

Among other precious metals, silver fell 0.4 percent to $19.73 an ounce, almost $1 lower than the one-month high of $20.60 hit last week. Platinum dropped 0.5 percent to $1,432.75 an ounce and palladium was down 2.1 percent to $726.72 an ounce.