Gold extended losses to hit its weakest in more than a month on Tuesday as the Lunar New Year break in Asia curbed physical demand, while Tokyo bullion futures softened after hitting a record-high last week.
Investors were waiting for a meeting of G20 finance ministers and central bankers later this week which could set the tone for forex markets, especially the euro. Gold struck a record of around US$1,920 in September 2011, when a worsening debt crisis in Europe sparked a buying rush.
Gold hit a trough around US$1,642 an ounce, its lowest since early January, and stood at US$1,643.11 by 0242 GMT, down US$4.54.
It ended up around 7 percent in 2012 - the 12th straight year of gains in one of the longest bull runs ever for a commodity.
"I think it's a little defensive at the moment," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo, referring to the slow trade during the Lunar New Year break. "But I personally feel that this is a bargain, this is cheap."
Booming demand for gold as a store of wealth among Asian investors has been driving physical gold bars and coins out of the United States and into Asia.
US gold fell US$5.20 to US$1,643.90 an ounce on Tuesday.
Shares were steady in Asia but markets lacked momentum due to investor caution ahead of key events such as the US president's State of the Union address. Markets reopened in Japan and South Korea, but Singapore, Hong Kong, mainland China, Malaysia and Taiwan remained closed.
Investors will also be on watch for any discussion on the strength of the euro ahead of the G20 meeting at the end of the week.
G20 finance ministers and central bankers meet in Moscow on Friday and Saturday, and G20 officials said on Monday the Group of Seven nations are considering a statement this week reaffirming their commitment to "market-determined" exchange rates.
Tokyo gold futures fell 31 yen to JPY4,999 a gram, with speculators taking profits from last week's rally to an all-time high of JPY5,081 a gram. Trading was closed on Monday for a holiday.
"Spot gold has dropped about US$20, but the Japanese yen is weak, so that's why you see buying from the general public," said a dealer in Tokyo, adding that gold bars remained at discounts of between 75 cents to US$1 to spot London prices.
Platinum and palladium were below their highest level in more than a year.
But both metals have out performed gold and silver so far this year on an improving economic outlook and after mining disruptions in South Africa, as well as a drop in supply from Russia, triggered fears of a deficit.
"Because of the Chinese New Year we expect cautious industrial demand for the upcoming week. Generally, we expect the price of platinum to be well supported by the situation in South Africa," precious metals refiner Heraeus said in a report.
But it remains to be seen whether palladium can establish itself above the key level of US$775.00 an ounce, or if investors will take profits around that point, it said.