LONDON: Gold dipped on Tuesday, losing its lustre ahead of a key 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 percentage point increase. Higher rates could dent demand for non-interest paying gold, while also boosting the dollar.
Spot gold was down 0.2 percent to $1,160.35 an ounce at 1237 GMT, after briefly touching a 10-month low on Monday.
US gold futures were down $3.90 at $1,161.90.
"The market is looking for future guidance because at this stage a rate hike should be a given," 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 possibly emanate from the policies of US President-elect Donald Trump and growth expectations.
"The Fed is as confused with Trump as is the rest of the world so it will be interesting what kind of guidance they give going into 2017," Hansen said.
Spot prices recovered from the 10-month low of $1,151.34 an ounce, touched in the previous session, as US Treasury yields came off their highs and the dollar eased ahead of the Fed meeting.
Reflecting lacklustre sentiment, holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.14 percent to 856.26 tonnes on Monday from Friday. Holdings are down over 9 pct since November.
Outflows from gold exchange traded products (ETP) continued due to the Fed's looming rate hike, said ETF Securities' commodity strategist Martin Arnold.
A greater "risk-on" mindset from investors, accompanied by a stronger dollar as the Fed prepares to hike rates for the first time in 12 months weighed on gold prices, Arnold said.
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 selloff in gold to the $1,140 level we are targeting for the precious metal 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, after rising nearly 1.4 percent in the previous session.
Platinum shed 0.7 percent to $925.25. The white metal rose as much as 1.9 percent in the previous session.
Palladium was up 0.6 percent at $726.
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