Gold prices were steady on Wednesday, but the positive start to 2014 looked to be fading -- leaving U.S. growth prospects and expectations for further Federal Reserve stimulus reduction to dominate sentiment.
Spot gold was flat on the day at $1,241.35 per ounce by 1254 GMT, after falling nearly 1 percent on Tuesday - its biggest one-day decline this year.
Investors have shied away from putting new money into gold as international economic recovery, led by the United States, is boosting stock markets and hurting the metal's appeal.
Dealers and analysts said concerns about further trimming of U.S. central bank stimulus, which weighed on prices last year, were back on the agenda.
The Federal Reserve holds its next policy meeting on Jan. 28-29 when markets think the U.S. central bank will announce a second cut to its $85 billion monthly bond purchases, which had burnished gold's inflation-hedge appeal.
"There was already a lack of fresh buying after the recent peak above $1,260," aid Alexander Zumpfe, trader at Heraeus Metals Germany.
"This together with the tapering 'news' and expectations that Asian physical buying might slow after Lunar New Year was enough to trigger selling," he added.
The International Monetary Fund raised its global growth forecast for the first time in nearly two years, saying fading economic headwinds should permit advanced nations to pick up the mantle of growth from emerging markets.
World stocks edged back towards 5-1/2 year highs as moves to cool lending-market tensions in China gave an extra boost to the brightening global economic outlook.
In other market news, sources said banks involved in the gold fix are reviewing the mechanics of its process to try to ensure that the benchmark complies with upcoming regulations. "With all the scrutiny on benchmarks, starting with Libor, it makes sense to make sure that the way the fixing is conducted doesn't leave itself open to accusations of manipulation," one source said.
CHINA PREMIUMS EASE
Asia-based traders said prices could fall further as Chinese physical purchases were also slowing.
Chinese premiums eased to $12 an ounce on Wednesday from $13 in the previous session. Premiums were higher earlier in the year on strong demand for the Lunar New Year holiday.
Platinum was up 0.3 percent at $1,451.75, consolidating after closing in on a three-month peak, as strikes were set to begin from Thursday at the South African mines of top producers.
The move could hit over half of global output of the precious metal and bosses of the world's top three platinum producers accused South Africa's AMCU union of making "unaffordable and unrealistic" demands.
Despite the metal's recent gains, HSBC analysts said the reaction has been subdued.
"A mining strike in South Africa would historically be bullish for the PGMs (platinum group metals) but the muted reaction more recently to the announcement for a possible strike may be due to investor awareness of producer stockpiling ahead of the wage negotiation period last year," the analysts said in a note.
Silver was also steady at $19.86 per ounce, while palladium lost 0.2 percent to $742.04.