Gold slips 2 percent as dollar firms before Fed meeting

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Gold fell more than 2 percent on Monday, after posting its biggest weekly gain in two months, as the dollar firmed before a Federal Reserve meeting that could provide clues on the timing of a possible interest rate rise by the U.S. central bank.

The Fed's meeting on Tuesday and Wednesday follows data pointing to a strengthening economy, which could sharpen the case for the central bank to take a more hawkish stance.

A sooner-than-expected rise in interest rates could boost the dollar and hurt non-interest-bearing bullion.

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fell to a session low of $1,191 an ounce earlier and was down 2.4 percent at $1,993 an ounce.

The metal climbed 2.6 percent last week, its largest such increase since October but investors were cashing in recent gains after gold failed to breach key resistance convincingly at $1,235.

U.S. gold for February closed $14.80 lower at $1,207.70 an ounce.

The dollar rose 0.2 percent against a basket of currencies, still underpinned by positive U.S. data last week. The latest upbeat evidence came on Friday when the Thomson Reuters/University of Michigan index of consumer sentiment jumped to a near eight-year high for December.

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The Fed is expected to release a statement at the end of its meeting, its last for the year, followed by a news conference by the central bank's chief, Janet Yellen.

Many investors believe the Fed may change its promise to keep interest rates near zero for a "considerable time".

"The question now is whether the Fed will drop the considerable-time language and become more dependent on the economic data, which could lead to a rate increase in June," Natixis analyst Bernard Dahdah said.

Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, posted their biggest weekly rise in five months last week, at 4.8 tonnes. That also marks the first time the trust's holdings have risen for two consecutive weeks since mid-July.

Data on Friday showed that hedge funds and money managers raised their net long positions in gold and silver futures and options to their highest in four months in the week to Dec. 9.

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