Gold fell on Tuesday ahead of the much awaited signing of an interim US-China trade deal that dampened the appeal of bullion, while palladium notched a record high on sustained supply deficit.
Spot gold dipped 0.3% to $1,542.83 an ounce by 10:52 a.m. EST (1552 GMT) after touching their lowest since Jan. 3 at $1,535.63. US gold futures dropped 0.5% to $1,543.50.
"The main thing is that a week ago we had the Iran-US news, that caused a pretty significant rally in gold; and now that news has subsided," said Bob Haberkorn, senior market strategist at RJO Futures.
"The US-China deal is also supposed to get signed tomorrow. So, the fact that two big drivers for gold in the geo-political front have kind of come and gone, so gold sold off here."
Bullion rose to its highest in nearly seven years last week on worries over potential military conflict between the US and Iran, but the rally faded in the absence of any further escalation in tensions.
Analysts said investors are still taking some profits after the massive spike in prices.
"That has also been noted in the exchange-traded funds market, where there have been some quite sizeable reductions since we reached that high," Saxo Bank's Ole Hansen said.
Signalling a further ramp down in trade tensions, the US Treasury on Monday dropped China's designation as a currency manipulator, fuelling market optimism.
Global equities markets stalled near record highs ahead of the signing of the trade deal.
A firm dollar was further weighing on the bullion by making its expensive for holders of other currencies.
US consumer prices rose slightly less than expected in December and monthly underlying inflation pressures retreated, which could allow the US central bank to keep interest rates unchanged at least through 2020.
Also on investors' radar is the Fed's Beige Book, a summary of commentary on economic conditions, due on Wednesday.
Palladium hit a record high of $2,162.64 an ounce, and was on track for a ninth straight session of gains. The auto-catalyst was up 1.3% at $2,159.07.
For 2020/21, "we forecast heavy structural supply/demand deficits for palladium," James Steel, chief precious metals analyst at HSBC wrote in a note.
"Likely robust automotive demand will help keep the market tight. Tighter emissions regulations globally imply heavier palladium auto catalyst loadings." Silver was down 1% at $17.79 after hitting its lowest since Dec. 24 at $17.64, while platinum rose 0.5% to $979.10.