LONDON (Reuters) - Gold prices inched lower on Monday as traders cashed in gains as they waited to see whether the U.S. central bank would start to trim its extraordinary stimulus measures. Though no major policy change is expected when Fed officials meet on Tuesday and Wednesday this week, most recent U.S.

LONDON (Reuters) - Gold prices inched lower on Monday as traders cashed in gains as they waited to see whether the U.S. central bank would start to trim its extraordinary stimulus measures.

Though no major policy change is expected when Fed officials meet on Tuesday and Wednesday this week, most recent U.S. economic data suggest that the beginning of the end of the massive bond-buying program will come sooner rather than later.

Spot gold was down 0.1 percent at $1,236.16 an ounce at 1301 GMT, having ended last week up 0.8 percent as uncertainty ahead of the Fed meeting triggered a flurry of short covering.

U.S. gold futures for February delivery were up $2.30 an ounce at $1,237.00

Expectations that the Fed will taper stimulus have already knocked gold prices 25 percent this year - their biggest annual drop in 32 years. As such, the impact of an eventual start to tapering is uncertain.

"Whether tapering might come this week or whether it might come in January or in March, the market is fairly convinced that tapering is coming," Mitsui Precious Metals analyst David Jollie said. "In that sense, a lot of the impact is built in."

Jollie acknowledged that tapering would be negative for gold, but he added that could be "only marginally negative".

"I think that what people will realise once tapering does start is that tapering is not the end of QE, it's a slowing in the pace of QE," he said.

Investment interest in gold remained soft, with the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reporting an outflow of 8.1 tonnes last week.

In the year to date its holdings have fallen 523 tonnes, or 39 percent, to a near five-year low at 827.6 tonnes.

E Fund Management Co Ltd launched China's third gold-backed ETF on Monday but, like its predecessors, the fund failed to make a splash as investors in the world's biggest bullion user show a preference for physical metal.

GOLD VULNERABLE

Buying was quiet in Asia's physical markets overnight, with consumers expecting prices to drop further this week after the Fed meeting.

Data released over the weekend showed India's exports of gold jewellery fell by almost a third year on year in November as restrictions continued to hit shipments. New rules imposed this year require export volumes to be at least 20 percent of imports.

From a chart perspective, gold remains vulnerable to further losses after running into heavy resistance last week at $1,268, a key technical retracement of its October to December drop, analysts said.

Among other precious metals, silver was up 0.1 percent at $19.67 an ounce, while spot platinum was down 0.4 percent at $1,355.75 an ounce and spot palladium was down 0.5 percent at $717.75 an ounce.

Palladium was last week's biggest faller, with a drop of 2.4 percent. The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, recovered to 1.91 from last week's 11-year low of 1.85.

(Additional reporting by Julia Fioretti; Editing by Jason Neely and David Goodman)

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