Bullion prices drifted lower in Europe on Tuesday as traders waited to see how currencies would react to an expected US Federal Reserve interest rate rise. Some dealers said the market was looking top-heavy after substantial buying by a hedge fund late last week and that prices might face a dip.
Higher US interest rates are potentially negative for gold as they increase the cost of funding a long position or the opportunity cost of holding an asset that has zero yield.
"I think these interest rates are beginning to bite a bit," one trader said. "Especially at the longer (dated) end of the market.
"It's just making it a little bit more negative for people to get involved."
By 1448 GMT spot gold was indicated at $433.20/434.00 a troy ounce, down slightly from New York's late quoted $434.60/435.40 on Monday.
Earlier prices failed to capitalise on a weaker dollar, when the euro hit a two-month high of $1.2416. A stronger dollar would usually weaken demand for gold as it makes the metal more expensive for non-US investors.
"I feel like the market is heavy...I am looking for a bit more progress on the downside," David Holmes, vice-president of commodities at RBC Capital Markets, said.
He identified an initial target of $430, followed by $427 - the 200- and 100-day moving averages, respectively.
"That would be a good pullback, but I would expect it to find support around $430-32."
Another trader said physical demand was fine, noting offtake from Turkey.
The US central bank is widely expected to deliver its 10th straight 25 basis point increase later on Tuesday, taking its overnight funds rate to 3.5 percent.
Analysts expect the Fed's post-meeting statement, due around 1815 GMT, to repeat that more measured credit tightening is ahead.
Deutsche Bank said in a report that a 25 basis point rise would push real rates to their highest since the end of 2000.
"However, at one percent, short-term real interest rates are still sufficiently low to pose no real danger to gold returns," the bank said.
"Only when rates rise above 2.5 percent do the risks to the gold price become most acute."
The market also continued to mostly ignore a crippling strike by South African gold miners that has brought mines to a standstill in the top bullion producer [nL09303351].
Traders and analysts said the action would not have much impact on the market unless it became protracted.
Silver slid by just over one percent, coming under pressure as copper shed two percent and other base metals fell. Spot fell to $6.95/6.98 from $6.96/7.01, having hit its lowest in two weeks at $6.87.
Platinum was at $903.00/906.00 from $899.00/902.00, while palladium gained to $186.00/190.00 versus its previous $188.00/191.00.