Gold futures have hit a two-month high as losses in the US dollar stoked demand for the metal a day ahead of closely watched minutes from the Federal Reserve's latest meeting.

The most actively traded contract, for December delivery, on Tuesday rose $US6.90, or 0.5 per cent, to settle at $US1,372.60 a troy ounce on the Comex division of the New York Mercantile Exchange.

The ICE US Dollar Index, which tracks the currency against some major US trading partners, touched its lowest point in two months on Tuesday. Gold and the US dollar can trade inversely, as some investors use the precious metal as a hedge against weakness in the currency.

Traders were also looking ahead to Wednesday's scheduled release of minutes from the Fed's policy meeting.

Gold prices have been pressured for much of this year by worries that the US central bank would pull the plug on its easy-money policies amid relative strength in the US economy. The belief that the Fed's years in easing mode would lead to inflation had been a key support for gold prices.

The selloff that took gold prices to multi-year lows has abated as traders await more details from the central bank on the timeline of potential shifts, said Kurt Pfafflin, an independent trader and author of the Gold and Silver Speculator newsletter.

"To some degree (the selling) has run its course. But gold could fall again" if the Fed does announce a rollback of its bond-buying program.

Meanwhile, there are signs that gold's recent price gains have limited demand for gold coins and bars by major consumers in Asia.

The gap between the price of gold bars on China's main exchange and London's global benchmark shrank to $US14 an ounce on Tuesday, from $US24 an ounce last week, traders with TD Securities said in a note. A lower premium in China can signal falling demand from China, which trails India as the No 2 gold consumer by volume.

Additionally, trading volumes on the Shanghai Gold Exchange have been gradually slipping since April, "another signal that the rush for precious metals in Asia may be faltering," the TD traders said.

In India, Tuesday's Hindu festival Raksha Bandhan wasn't met with the usual increase in demand for gold and silver, sellers said. The festival kicks off a three-month season when consumers consider it auspicious to buy gold and silver.

Instead of buying, "investors are eager to book profits before any fall in gold prices," said Jitendra Kantilal Jain, partner at Jugraj Kantilal and Co, a jewellery shop in Mumbai's Zaveri Bazar, the city's main gold trading hub.

Settlements (ranges include open-outcry and electronic trading):

London PM Gold Fix: $1,372.50; previous PM $1,365.00

Dec gold $1,372.60, up $6.90; Range $1,351.60-$1,378.00

Sep silver $23.071, down 9.5 cents; Range $22.280-$23.310

Oct platinum $1,525.50, up $16.50; Range $1,496.70-$1,527.10

Sep palladium $749.65, down $3.25; Range $743.35-$756.45

 

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