Gold fell for a second straight session on Tuesday as the dollar strengthened and US bond yields rose, while traders awaited a US Federal Reserve policy meeting for any indications on interest rate hikes this year.

Spot gold was down 0.3 per cent at $1,335.93 per ounce at 0311 GMT after Monday's 0.7 per cent drop, while US gold futures were 0.4 per cent lower at $1,334.20 per ounce.

Gold prices have risen 2.5 per cent so far this month, largely due to a weakness in the dollar. The greenback posted its sixth straight weekly drop last week, hitting a three-year low on Friday, and was on track for its biggest monthly decline since March 2016.

Fed rate hike

The Fed is widely expected to keep interest rates unchanged at its two-day policy meeting that starts later in the day. Investors, however, will be focusing on the central bank's assessment of the economy and inflation for hints on the monetary policy outlook.

Gold prices have risen over 8 per cent since the last Fed meeting in December. “Surprisingly, gold has completely dislocated from its negative correlation to real interest rates, with both up since the last Fed meeting... We believe this dislocation is more a temporary phenomenon than a change in regime,” UBS analysts said in a note.

“This week's Fed meeting and US jobs report may well be the catalyst to a re-establishment of the historical negative correlation between US real rates and gold, as both data points are likely to support the ongoing monetary policy tightening in the US.”

US Treasury yields

US Treasury yields surged to more than three-year highs on Monday after comments from a European Central Bank official added to expectations that central banks globally will reduce stimulus as the economic outlook improves.

Rising bond yields helped underpin the greenback ahead of a week packed with US data. The dollar index, which measures the greenback against a basket of currencies, rose 0.2 per cent to 89.471.

The sudden repricing in global bond markets caught a consolidating gold market off guard, triggering profit-taking, said Stephen Innes, APAC trading head for OANDA.

Spot gold may break a support at $1,335 per ounce and fall more towards the next support at $1,316, as suggested by its wave pattern and a Fibonacci retracement analysis, according to Reuters technical analyst Wang Tao.

SPDR Gold Trust

Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.17 per cent to 846.67 tonnes on Monday from 848.14 tonnes on Friday.

Among other precious metals, silver was up 0.1 per cent at $17.15 an ounce. Platinum was down 0.5 per cent at $998.50 after dropping to its lowest since Jan. 23 at $993.74. Palladium fell 0.2 per cent to $1,083.97.