Gold edged lower on Tuesday, losing its lustre ahead of a two-day meeting of the US Federal Reserve that is expected to deliver the second interest rate rise in a decade. The Fed meeting starts later on Tuesday and markets have priced in a nearly 100 percent chance of a quarter of a percentage point increase. Higher interest rates generally dent demand for non-yielding bullion while strengthening the dollar, in which it is priced.
Spot gold slipped by 0.4 percent to $1,157.71 an ounce by 1457 GMT, having briefly touched a 10-month low of $1,151.34 on Monday. US gold futures were down 0.4 percent at $1,160.80. "The market is in wait-and-see mode with the FOMC meeting starting," said Saxo Bank's head of commodity strategy, Ole Hansen.
Investors will be looking for clues on how the central bank will deal with inflation that could emanate from the policies of US President-elect Donald Trump and economic growth expectations. "The Fed is as confused with Trump as is the rest of the world, so it will be interesting to see what kind of guidance they give going into 2017," Hansen said.
Spot prices recovered from Monday's low point as US Treasury yields came off their highs and the dollar eased ahead of the Fed meeting. Reflecting lacklustre sentiment, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.14 percent from Friday to 856.26 tonnes on Monday. Holdings are down more than 9 percent since November.
Outflows continued because of the expected Fed rate increase, said ETF Securities' commodities strategist Martin Arnold, adding that a greater "risk-on" mindset accompanied by a stronger dollar weighed on prices. In other assets, global stocks rose, while the benchmark US 10-year treasury yield hovered near a two-year high. "If we are correct, we should see a rise in rates and a stronger dollar. The two could spark a fresh sell-off in gold to the $1,140 level we are targeting for some time in December," INTL FCStone analyst Edward Meir said in a note.
Silver was up 0.1 percent at $17.08 an ounce, building on a gain of nearly 1.4 percent in the previous session. Platinum shed 0.7 percent to $925.25, having risen by 1.9 percent on Monday. Palladium was up 0.6 percent at $726. Holdings of palladium-backed exchange-traded funds have dropped back to levels not seen since early 2014.