Gold fell to a 10-day low on Tuesday as global shares rose and expectations that Britain could vote to leave the European Union in Thursday's referendum receded. Two opinion polls on Monday showed the "Remain" camp had recovered some ground in the referendum debate though a third poll found those wanting to leave were ahead by a whisker.
"With the odds for a 'Brexit' outcome lower, riskier assets increased and gold is coming under increasing pressure," ABN Amro analyst Georgette Boele said. Bullion extended losses after US Federal Reserve Chair Janet Yellen said global risks and a US hiring slowdown warrant a cautious approach to raising interest rates. Spot gold fell as much as 1.9 percent to a low of $1,265.40 an ounce and was down 1.6 percent at $1,269.80 by 2:42 p.m. EDT (1842 GMT). US gold settled down 1.5 percent at $1,272.50.
"Wider markets seem to be too confident in a 'remain' victory," said Macquarie analyst Matthew Turner, adding that a decision to stay in the European Union could mean the Fed could get on with raising interest rates, which would be negative for gold.
"In the event of Brexit, we expect gold to move 10 percent higher and volatility to increase significantly. Safe-haven demand, risk aversion and dollar strength will be the key drivers of commodity prices," said Societe Generale in a note. If Britons vote to remain within the EU, Societe Generale said gold volatility will increase amid re-positioning and reduced safe-haven demand. Stock markets edged higher and sterling fell from a 5-1/2-month high as polls and surveys showed the United Kingdom's vote on leaving the EU is on a knife-edge.
Gold touched a near-two year high at $1,315.55 last week due to uncertainty around the outcome of the UK referendum and after a cautious note from the Fed on interest rates. Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding the precious metal.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to the highest since September 2013 on Monday. Meanwhile, silver fell 1.3 percent to $17.26 an ounce, platinum was down 1 percent at $973.50 an ounce and palladium dropped 0.3 percent to $547.97 an ounce.