Gold slides over 1% on dollar strength as Fed meeting looms

Gold prices fell more than 1 per cent on Monday, weighed down by a stronger dollar and easing concerns about inflation, while investors awaited cues from the US Federal Reserve's policy meeting due later this week.

Spot gold fell 1.4 per cent to $1,849.98 per ounce by 1217 GMT, after hitting its lowest since May 17 at $1,848.49. US gold futures dropped 1.4 per cent to $1,852.50 per ounce.

Along with a stronger dollar, profit-taking is weighing on the metal, said independent analyst Ross Norman, adding the market was seeing some book squaring ahead of the Fed's June 15-16 meeting.

"What really matters is to what extent the Fed is going to be focusing on the immediate problem, which is likely inflation, or the longer-term problem, which is going to be tapering," Norman said.

The dollar was little changed after posting its biggest weekly rise in six weeks.

Last week, data showed a sharp rise in May US consumer prices. But Fed officials have repeatedly said inflation would be transitory.

Gold is traditionally considered a hedge against inflation that may be triggered by widespread stimulus measures.

"The Fed is expected to leave policy unchanged and again play down taper talk," ING analysts said in a note.

"Nonetheless, markets will be looking for hints on whether the Fed is starting to acknowledge that inflation may not be as transitory as thought. A technical adjustment to address the rapid build-up in excess liquidity is certainly possible, but dollar downside risks remain."

Speculators reduced their net long positions in COMEX gold in the week ended June 8 and raised their net long positions in silver.

Elsewhere, silver fell 1.1 per cent to $27.59 per ounce, palladium dropped 1 per cent to $2,749.01, and platinum dipped 0.4 per cent to $1,145.95.