LONDON: Gold slipped lower on Tuesday as a strong dollar and signals that the U.S. economy is benefiting from a decline in oil prices renewed expectations of a tightening in monetary policy by the U.S. Federal Reserve around the middle of next year.
Spot gold dipped 0.8 percent to $1,200.40 an ounce by 1502 GMT, having gained nearly 4 percent on Monday in its biggest one-day jump since September 2013. U.S. gold futures fell 2 percent to $1,194.30 an ounce.
Spot prices had fallen on Monday to a near-three-week low after Switzerland voted against boosting its gold reserves, then rallied to $1,220.99, its highest in a month, as oil prices recovered.
"Technically, it is important that gold holds the $1,190 area, as a breach through that level could generate further losses to that $1,140 to $1,150 range that we have seen on Monday," ActivTrades senior analyst Carlo Alberto de Casa said.
Bullion has fallen in tandem with oil in recent sessions on expectations that weaker crude prices could reduce inflationary pressures. The metal is usually seen as a hedge against oil-led inflation.
The dollar was up 0.7 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 soft oil prices would dampen overall costs to consumers only temporarily and painted a mostly rosy outlook, suggesting the Fed was not letting energy distract it from lifting rates.
A sooner than expected rise in interest rates could boost the dollar and hurt non-interest-bearing bullion.
"There is extremely choppy trading going into 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," BofA Merrill Lynch analyst Michael Widmer said.
Physical demand from Asian buyers supports gold, but prices in top consumer China were trading at a premium of less than $1 an ounce on Tuesday. Prices had even slipped to a discount early on Monday, hinting at sluggish demand.
India, the second biggest consumer, eased import curbs last week but trade sources said overseas purchases may not be quick to emerge because of adequate stocks in the country.
Platinum lost 1.6 percent to $1,218.25 an ounce, while silver fell 0.4 percent to $16.35 an ounce and palladium edged 0.7 percent lower to $797.98 an ounce.
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