Gold hit a 2-1/2 weeks low on Monday as the dollar rose ahead of a two day Federal Reserve meeting and global equities surged. The dollar hit an eight week high against the yen as data showing a pick up in US consumer prices increased bets the Fed could raise interest rates again in December.
Investors also expect the Fed will announce plans to start trimming its balance sheet at its meeting on Tuesday and Wednesday in a move that should support the dollar and weigh on dollar-priced gold. World stocks hit a record high ahead of the Fed meeting, with investors favouring risky assets ahead of perceived safe havens such as gold.
Spot gold was down 0.6 percent at $1,311.51 an ounce by 1346 GMT, having earlier touched $1,309.63, its lowest since Aug. 31. US gold futures for December delivery fell 0.8 percent to $1,314.90. "Gold could fall below $1,300 in the short term, but the question remains how people perceive the US economy and the need for higher interest rates," said Ole Hansen, head of commodity strategy at Saxo Bank.
"At this stage there's still not a strong view the US economy will accelerate. That should keep interest rates at a manageable level and provide some support for gold." Persistently subdued inflation despite a pick up in global growth remains the "trillion dollar" question for central banks looking to normalise policy, the Bank for International Settlements said on Sunday.
Investors currently put the probability of a December rate hike at less than 50 percent in the futures market. On the political front, investors largely brushed aside concerns after a relatively quiet weekend on the Korean peninsula. US Ambassador to the United Nations Nikki Haley said on Sunday the UN Security Council had run out of options on containing North Korea's nuclear programme and the United States may have to turn the matter over to the Pentagon.
An address by US President Donald Trump to world leaders at the United Nations on Tuesday could put North Korea tensions back in focus. Elsewhere, data showed speculators raised their net long position in COMEX gold contracts for the ninth straight week, bringing it to a one-year high in the week to Sept. 12 and leaving gold vulnerable to profit taking. Silver slipped 1.3 percent to $17.65 an ounce after touching its lowest since Aug. 31. Platinum dipped 0.3 percent to $960.50, while palladium gained 0.9 percent to $931.72.70.
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