By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold fell more than 1 percent on Thursday, as the dollar rose for the third day and world stocks climbed to 2016 highs, with uncertainty over the outlook for U.S. monetary policy this year adding to volatility.
Spot gold was down 1.3 percent at $1,226.06 an ounce at 2:32 p.m. EDT (1832 GMT). U.S. gold futures for June delivery settled down 1.7 percent at $1,226.50.
The metal has steadied after its biggest quarterly rise in nearly 30 years, driven by a retreat in expectations that the U.S. Federal Reserve will push ahead with several rate hikes this year.
Gold is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
Atlanta Fed President Dennis Lockhart said a potential British exit from the European Union would be a "big event" although it should not "stop the music" on a potential interest rate hike in June.
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"Traders are not willing to accept that the Fed will not be raising the rates anytime soon," Naeem Aslam, chief market strategist at Ava Trade, said. "Most of the bad news is factored into the dollar and it appears they cannot push the greenback any further. This is impacting the price of gold."
The dollar rose 0.5 percent versus a currency basket as improved risk sentiment led investors to trim positions in low-yielding currencies, but pared gains after weaker-than-expected March U.S. consumer price data. [FRX/]
"The weaker-than-expected figures today appear to justify the Fed's analysis that some of the recent pick-up was due to temporary factors, and also supports our decision following yesterday's retail sales release to push back our call for the next rate hike to September," said Andrew Grantham, senior economist and director of CIBC Economics.Holdings of the world's largest gold-backed ETF, SPDR Gold Shares , fell 5.05 tonnes on Wednesday to their lowest in a month.
"What risks the gains in the gold market this year reversing is the Fed starting to push ahead with rate hikes, but I don't see them hiking before September," Danske Bank analyst Jens Pedersen said.
Among other precious metals, palladium outperformed, jumping on technical buying above key Fibonacci retracement levels. Spot palladium rose as much as 3.4 percent to $561.02 an ounce, the highest since April 4 and biggest one-day rally in a month.
Silver fell 0.4 percent to $16.13 an ounce, after reaching its highest since late October the previous day. Platinum was down 0.6 percent at $989.03 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Mark Potter and Meredith Mazzilli)