Prices of the bullion declined further on optimism about economic recovery in the United States and Europe. Meanwhile, rising oil prices can provide support and physical demand is also expected to gain traction after Lunar New Year celebration.

Investors awaited the European Central Bank's rate decision later in the day, but the U.S. non-farm payroll data due on Friday was likely to be the main focus, with hiring probably gathering steam in January.

Spot gold lost $7.50 to $1,328.50 an ounce by 0734 GMT after falling 0.5 percent in the previous session despite tensions in Egypt, which pushed up energy prices. Bullion was well below a lifetime high around $1,430 struck in December.

"In the near term, developments in Middle East will continue keep the markets volatile, but more pivotal will be the ECB rate decision and the non-farm payrolls due on Friday," said Pradeep Unni, senior analyst and trader at Richcomm Global Services in Dubai.

"Charts signal that sentiment would continue to be bearish as long as gold is contained below $1,345 an ounce. Any sustained gains above $1,350 could take gold above $1,365. Gains from here on however would be slow and steady, with frequent corrections."

U.S. gold futures for April fell 3.5 an ounce to $1,328.6, having earlier risen to track gains in oil prices.

Precious metals prices 0734 GMT

Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 1328.50 -7.50 -0.56 -6.41
Spot Silver 28.25 -0.11 -0.39 -8.46
Spot Platinum 1828.49 -1.50 -0.08 3.45
Spot Palladium 810.99 -0.23 -0.03 1.44
TOCOM Gold 0.00 -3509.00 -100.00 -100.00 0
TOCOM Platinum 0.00 -4857.00 -100.00 -100.00 0
TOCOM Silver 0.00 -74.20 -100.00 -100.00 0
TOCOM Palladium 0.00 -2147.00 -100.00 -100.00 0
euro/dollar 1.3815
Dollar/Yen 81.62

TOCOM prices in yen per gram. Spot prices in $ per ounce.