Gold fell to its lowest in nearly three weeks on Tuesday, losing 1.5 percent after encouraging U.S. economic data showing the trade gap narrowed and more indications the Federal Reserve could withdraw its monetary stimulus as early as next month.

Bullion's failure to hold above $1,300 an ounce earlier in the day triggered technical selling, traders said. Gold was under pressure after Monday's international trade data showed the U.S. economy likely grew faster than initially reported in the second quarter, thanks to a sharp narrowing in the trade deficit to its lowest in more than 3-1/2 years in June as exports touched a record high and imports fell.

Also weighing on gold was uncertainty over the time frame of the Fed's planned reduction of its bond purchases to stimulate the economy known as quantitative easing. Charles Evans, president of the Chicago Federal Reserve Bank, said on Tuesday the Fed will probably reduce its stimulus program later this year, and depending on the economic data could do so as early as next month.

"While a pushback in QE withdrawal expectations may provide some relief for the bullion market and help engineer a short term rally, the implications behind this action is ultimately negative for gold," said James Steel, chief metals analyst at HSBC.

Spot gold fell 1.5 percent to $1,283.60 an ounce by 2:50 p.m. EDT, having earlier dropped as much as 1.9 percent to its lowest since July 18 at $1,279.24 an ounce earlier. U.S. gold futures for December delivery settled down $19.90 at $1,282.50 an ounce, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed.

Tuesday's pullback was exacerbated by technical selling as automatic stop-loss orders were placed by traders below the $1,300 an ounce mark to limit losses, traders said. Gold has lost around 25 percent of its value this year on fears the Fed will curb its monetary stimulus on signs of economic recovery.

PHYSICAL DEMAND SLOWS

The precious metal was also weakened on signs of waning physical Asian demand. China's total gold imports from Hong Kong fell to 111.718 tons in June from 126.949 tons in May, as prices for the precious metal fell.

Gold importers in top bullion consumer India remained on the sidelines for a third straight week due to policy uncertainty on shipments, and premiums eased.

As a gauge of investor sentiment, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.2 percent to 917.14 tons on Monday.

Among other precious metals, silver dropped 0.8 percent to $19.54 an ounce. Platinum fell 1.4 percent to $1,426.49 an ounce and palladium lost 1.4 percent to $720.50 an ounce.