Gold prices extended losses on Tuesday as investors positioned for the United States Federal Reserve's policy meeting, with a strengthening U.S. dollar and rising expectations of an interest rate hike weighing on the precious metal.
By 3:55 pm AEST (5:55 am GMT), spot gold was down 0.8% at US$4,043.35 an ounce after retreating from above US$4,100 in the previous session.
The U.S. dollar remained near three-week highs after strengthening on Monday as traders increased bets that the Federal Reserve could raise interest rates at the conclusion of its two-day meeting.
According to the CME Group FedWatch Tool, markets are pricing a 37.9% probability of a 25-basis-point rate increase this week, up from around 16% a week ago.
Traders are also assigning an 80.8% chance of a rate hike at the September meeting.
The prospect of tighter monetary policy has outweighed the positive impact of easing oil prices and reduced inflation concerns following signs of a pause in the U.S.-Iran conflict.
Higher interest rate expectations have supported short-term U.S. Treasury yields and the U.S. dollar, reducing the appeal of non-yielding assets such as gold.
Risk sentiment also remained fragile as a fresh sell-off in semiconductor stocks across Asia boosted demand for safe-haven currencies, providing additional support for the greenback.
Investors are now focused on the Federal Reserve's policy announcement and Chair Kevin Warsh's comments for clues on the outlook for interest rates, which are expected to drive the next move in gold prices.
