Spot gold fell 0.3 percent an ounce to $1,362.80 by 1120 GMT, having rallied on Monday to a six-month high at $1,391.76 before investors started to cash in profits.
U.S. gold futures for April delivery fell as much as one percent to a session low of $1,358 an ounce, before trading at $1,362.70, down $10.20. It rallied to its strongest since September at $1,392.60 on Monday.
"The market had positioned itself for a worst case scenario in Ukraine but that has not really materialised, we had sanctions introduced by Europe and the U.S. and those are not going to really scare Mr Putin," Saxo Bank senior manager Ole Hansen said.
"As long as that is the kind of response that we are seeing, I think that the risk of an escalation in tensions in the area is probably reduced."
Ukraine's mainly Russian-speaking region of Crimea voted overwhelmingly in a weekend referendum, condemned by Western states, in favour of joining Russia.
The United States and European Union imposed personal sanctions on Monday on Russian and Crimean officials involved in the seizure of Crimea from Ukraine as Russian President Vladimir Putin signed a decree recognising the region as a sovereign state.
Gold has risen 13 percent this year and was headed for its biggest quarterly gain for at least seven years as mounting geopolitical tensions and fears over slowing economic growth spurred demand for the metal as an insurance against risk.
European shares slipped and the dollar rose 0.1 percent against a basket of currencies on Tuesday.
Traders were now awaiting the two-day U.S. Federal Reserve's policy meeting starting later on Tuesday.
Since the U.S. central bank is already expected to stick to reducing its monthly asset purchases by an additional $10 billion, the impact of the decision on gold could be limited.
A series of U.S. economic data showing that growth has been hurt by severe cold weather in the first two months of the year had hit the dollar, in turn bolstering gold. A weaker U.S. currency makes dollar-denominated assets like gold cheaper for foreign investors.
But better-than-expected U.S. jobs and industrial output reports over the past week indicated the U.S. economy was improving after a winter slowdown.
"The U.S. data has picked up a bit more recently, we have seen a better jobs report, so the case for tapering is reinforced and the big unknown tomorrow is the kind of wording that (Federal Reserve Chair) Janet Yellen will use," Hansen said.
The physical market saw some selling, with demand from top consumer China likely to be muted in coming weeks as domestic prices stayed at discounts to cash gold.
Premiums for gold bars in Hong Kong were unchanged at $1 an ounce versus the spot London prices.
In other precious metals, silver fell 0.6 percent to $21.01 an ounce. Platinum was down 0.7 percent to $1,449.00 an ounce and palladium lost 0.7 percent at $764.30 an ounce.