Gold prices firmed on Tuesday as the dollar slipped to a one-week low, making bullion more attractive, with investors awaiting an interest rate decision by the US Federal Reserve. Spot gold rose 0.1 percent to $1,280.47 per ounce as of 10:48 am EDT (1448 GMT). US gold futures were also up 0.1 percent at $1,282.40 an ounce.
"The dollar index backed off and is seeing some significant loss today after hitting a two-year high last Friday and that is supporting the metals market," said Jim Wyckoff, senior analyst with Kitco metals. The dollar index, which tracks the greenback against major currencies, fell to its lowest since April 23.
The US unit is down 0.3 percent, which could be its biggest daily percentage decline in more than three weeks. Investors now look to the US Federal Reserve's two-day policy meeting for clues on the interest rate outlook. A decision on interest rates will be announced on Wednesday.
"The Fed meeting could be interesting because if they say there is no change in their position or their dovish language gold could move a bit higher," said INTL FCStone analyst Edward Meir. "But, if they tweak their language a bit ... then gold could come under pressure as dollar would go up in that case. Everyone is on hold till tomorrow."
Interest rate futures traders are currently pricing in a 61 percent chance of an interest rate cut by December, according to the CME Group's FedWatch Tool. Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.
Gold rose as much as 0.5 percent to touch a session high of $1,286.14 earlier in the day after disappointing Chinese factory activity data decreased investors' appetite for riskier assets. In other metals, silver dipped about 0.2 percent to $14.87 per ounce, while platinum fell 1 percent to $885. Palladium gained about 1 percent to $1,384.01 an ounce, after touching its lowest in nearly two weeks at $1,354 earlier in the session. The metal slumped over 7 percent on Monday.
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