LONDON: Gold slipped around 1 percent on Tuesday as a firm dollar and signals the U.S. economy is benefiting from a decline in oil prices renewed expectations the Federal Reserve may start to tighten policy sometime in the middle of 2015.
Spot gold dipped 1 percent to $1,198.99 an ounce by 1108 GMT, after gaining nearly 4 percent on Monday, its biggest one-day jump since September 2013.
U.S. gold futures fell 1.6 percent to $1,198.80 an ounce.
Spot prices traded in a $80 range on Monday, first falling to a near three-week low after Switzerland voted against a proposal to boost its gold reserves, and then rallying to $1,220.99, its highest in a month, as oil prices recovered.
"There is extremely chopping trading going in the year end ...concerns over the impact of lower prices on inflation and what lower inflation does to a central bank's policy are driving factors at the moment," BofA Merrill Lynch analyst Michael Widmer said.
Bullion has fallen in tandem with oil in recent sessions on expectations that weaker crude prices could further reduce inflationary pressures. The metal is usually seen as an hedge against oil-led inflation.
But crude oil jumped as much as 5 percent on Monday, rebounding from five-year lows with their biggest daily gain since 2012. It fell again on Tuesday.
The dollar was up 0.3 percent against a basket of leading currencies, underpinned by comments from Fed Vice Chairman Stanley Fischer and New York Fed President William Dudley at separate events on Monday.
Both said that soft oil prices would only temporarily dampen the overall cost borne by consumers and painted a mostly rosy outlook, suggesting the Fed was not letting energy markets distract it from lifting rates.
An increase in interest rates faster and sooner than expected, which could continue to boost the dollar and hurt non-interest-bearing bullion.
Physical demand from Asian buyers would also have to be strong for the rally to sustain.
In top consumer China, local prices were trading at a premium of less than $1 an ounce on Tuesday, lower than Monday's $1-$2. Prices even slipped to a discount early on Monday, hinting at sluggish demand.
India, the second biggest consumer, eased import curbs last week in a surprise move but trade sources said that overseas purchases may not be quick to emerge to due to adequate stocks in the country.
Platinum lost 1.7 percent to $1,212.00 an ounce. Silver fell 1.3 percent to $16.21 an ounce, and palladium also edged 0.8 percent lower to $798.05 an ounce.
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