By Peter Hobson
LONDON (Reuters) - Gold hovered close to a three-week low on Tuesday as demand for riskier assets drove stocks and U.S. treasury yields higher and the dollar hit a six-week peak against the yen.
"Risk appetite is back," said Societe Generale analyst Robin Bhar.
Rising share prices and higher bond yields increase the opportunity cost of holding non-yielding bullion, while a stronger dollar makes gold more expensive for holders of other currencies.
Spot gold was down 0.1 percent at $1,255.02 an ounce at 1045 GMT, while U.S. gold futures were up 0.1 percent at $1,256.40 an ounce.
Gold on Monday fell 0.9 percent and touched $1,253.66 at one point, its lowest since April 11, after U.S. lawmakers agreed on a spending package to avert a U.S. government shutdown and the Nasdaq share index reached a record high.
The market's so-called fear gauge, the VIX volatility index, has meanwhile fallen to its lowest since 2007.
Gold has slipped 3 percent since a mid-April high and is hovering above its 200-day moving average, currently at $1,252 an ounce.
Analysts said a move below that key technical level would unleash selling as fund investors reduced a long position that has risen to the largest in 5 1/2 months.
Gold was likely to move towards its 400-day moving average of $1,224, technical analysts at ScotiaMocatta said in a note.
Investors were looking ahead to the outcome of a two-day U.S. Federal Reserve policy meeting to be announced at 2 p.m. EDT (1800 GMT) on Wednesday and employment data that will indicate the speed of U.S. economic growth.
"If the Fed signals further rate increases and shrinking of the balance sheet tomorrow and then we get a good jobs number on Friday we should certainly end the week below $1,250, and maybe closer to $1,240," said Societe Generale's Bhar.
In other precious metals, silver was up 0.5 percent at $16.93 an ounce, after falling 2 percent and touching $16.78 an ounce, its lowest since March 10, on Monday.
Platinum was 0.5 percent higher at $929.65. It hit a four-month low of $923 in the previous session.
Palladium was down 0.1 percent at $813.50.
(Additional reporting by Swati Verma in Bengaluru; Editing by Susan Fenton)
Disclaimer: No Business Standard Journalist was involved in creation of this content
