Gold prices fell on Tuesday as the dollar strengthened ahead of a Federal Reserve meeting at which the US central bank is expected to raise interest rates for the first time this year. The looming Fed meeting has helped to push down gold by 4 percent from the 1-1/2 year high reached in January.
Higher interest rates are negative for gold because they raise bond yields, reducing the appeal of non-yielding bullion. They also tend to boost the dollar, making gold more expensive for users of other currencies. Spot gold was down 0.3 percent at $1,312.11 an ounce by 1527 GMT, while the dollar strengthened against a basket of major currencies and US bond yields rose.
US gold futures for April delivery were down 0.4 percent at $1,312. "The market has fully priced in a rate hike," said Saxo Bank analyst Ole Hansen.
Investors were instead looking ahead to guidance on the pace of future rate increases, with the Fed likely to take a cautious approach that would help to lift gold prices, he said. "With inflation not really picking up, rising geopolitical risk, trade wars looming and a flattening yield curve - this is not a backdrop that gives the Fed any urgent need to step up the speed of rate hikes," Hansen said. Markets expect the Fed to raise rates three or four times this year. Gold prices have tended to fall ahead of rate increases in recent years and to rise after them.
As gold has fallen, funds have scaled back bets on higher prices, with the net long position in Comex gold falling to about 136,000 contracts from almost 210,000 in late January. That gives investors more space to buy gold, which could help prices to recover, said MKS trader Sam Laughlin.
Holdings of gold in exchange-traded funds (ETFs) tracked by Reuters have meanwhile jumped to the highest level since November 2016. "That tells me longer-term investors have not given up their belief in higher prices," Saxo Bank's Hansen said.
Technical support for gold was at its 100-day moving average of $1,305 an ounce. In other precious metals, silver was down 0.8 percent at $16.18 an ounce after reaching a three-month low. Silver has echoed gold's drop and is down nearly 9 percent from a four-month high in January.
Platinum was down 1.3 percent at $940.50 after touching its lowest since January 3 on Monday. Palladium, meanwhile, fell 1.2 percent to $978.60.