Gold prices lost their allure in Europe on Tuesday afternoon, with fund selling in thin trade, as investors preferred to wait on the sidelines ahead of US Federal Reserve interest rate meetings, dealers said. Spot gold dipped to $436.00/436.70 per troy ounce by 1444 GMT from $439.75/440.50 late in New York on Monday.
The market also seemed to be following currency leads - having hooked in and out of its inverse relationship with the dollar/euro over the past month - as the fell, making the dollar-priced metal more expensive for overseas investors.
The euro struggled, after hitting a 10-month low below $1.20 last week, on expectations for the US interest rate gap to widen further over the eurozone.
"We've seen a dull dribble lower with some fund selling and support between $436 and $437 for now," a dealer said, adding that the market could also see some first half book squaring in the next couple of days.
Wall Street economists overwhelmingly expect the Federal Reserve to raise its key interest rate by a quarter point when it meets this week, a Reuters poll found on Monday.
The Fed is expected to raise rates to 3.25 percent, while eurozone rates have been at a historically low 2 percent.
US monetary tightening would tend to boost yield potential for the dollar, but dealers and analysts did not rule out the possibility of gold resuming bullish momentum as fund buyers have upped their exposure to the metal recently with, and without, currency support.
The market stopped a few dollars short of a fresh 2005 peak scored in March at $446.70 on Friday as investors booked profits from the rally.
Analyst James Moore of TheBullionDesk.com said that record high oil prices could boost inflation fears, prompting some investors to possibly buy bullion as a hedge.
"Concerns over the rising cost of oil has the potential to generate anti-inflationary buying in the gold market over the coming sessions, however, a failure to clear $442-5 could trigger some stale liquidation as gold remains in overbought territory," he said in a daily report.
In other metals, silver dropped sharply, encouraged by falls on gold, to $7.12/7.15 from $7.21/7.24 late in New York on Monday.
Platinum also fell to $880.00/884.00 from $886.00/890.00, while palladium was at $182.00/186.00 from $185.00/189.00.
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