SINGAPORE: Gold gave up some of its overnight gains on Tuesday on a stronger dollar and fears the Federal Reserve could soon raise US interest rates.
The greenback got a lift from a Wall Street Journal report that Fed officials were seriously considering dropping an assurance that short-term interest rates would stay near zero for a "considerable time".
The step might be taken at the Fed's policy meeting next week, the report said.
Higher rates would decrease demand for non-interest-bearing bullion.
Spot gold had slipped 0.2 percent to $1,200.60 an ounce by 0349 GMT. It jumped 1 percent on Monday on technical buying after the dollar eased from a more than five-year high.
"Gold will have a hard time holding on to rallies because the gains are mostly from short-covering," said a trader in Sydney.
"The fundamentals regarding a strong economy haven't changed and people are still very much bearish on gold because it looks like a rate hike will come soon."
That was reflected in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, seen as a proxy for investor sentiment.
The fund's holdings resumed declines after a brief uptick and were close to six-year lows on Monday.
Gold will likely face resistance near $1,201, while support is around $1,188, according to ScotiaMocatta.
The major factor hurting sentiment is the strength in the dollar, which can be boosted by robust economic data and the possibility of higher rates.
A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies and also decreases its attraction as an alternative investment.
Softer oil prices have also hurt gold's appeal as a hedge against oil-led inflation. Benchmark Brent crude slipped to its lowest in five years on Tuesday.
Cues for the day will also come from US data that could indicate the strength of economic recovery and its impact on monetary policy.
Gold wasn't getting much support from the physical markets.
Prices in China, the top consumer of the precious metal, had slipped to a discount of about 50 cents an ounce on Tuesday from a premium of about $2 in the previous session.
Buyers of jewellery and bars have been cautious due to the recent volatility in prices.
Strong physical purchases usually provide a floor to falling gold prices.
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