Gold rose on Tuesday as the dollar fell, but remained hemmed into a range at the start of a two-day U.S. Federal Reserve policy meeting which is being closely watched for clues on the outlook for U.S. interest rates.
The dollar slid 0.17 percent against a currency basket, largely due to a bounce in the yen after traders dialed back expectations for how much new stimulus Japanese authorities would inject into an ailing economy.
Spot gold was up 0.41 percent at $1,320.59 an ounce, while U.S. gold futures for August delivery settled up $1.30, or 0.1 percent, at $1,320.80.
The Federal Reserve is expected to keep interest rates unchanged this week, deferring any possible increase until September or December, as policymakers hold out for more evidence of a pickup in inflation.
The Fed will release a statement on Wednesday at 2 p.m. EDT (1800 GMT). A rate hike would be negative for gold.
"The key thing for commodities in the past month is that the macro data in both the United States and China has definitely improved, and that is reflected in the probability of rate hikes," Oxford Economics' director of commodity services Daniel Smith said.
"We're looking at a 50 percent probability of a rate hike by year-end."
U.S. data released on Tuesday was strong, with consumer confidence steady in July and new single-family home sales at the highest in nearly 8-1/2 years in June.
A surge in Western investment helped offset sliding Asian demand in the second quarter, GFMS analysts at Thomson Reuters said, as they hiked their gold price forecast.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell on Monday.
Top consumer China's net gold imports via main conduit Hong Kong fell 38.5 percent in June, data released on Tuesday showed.
Spot palladium extended gains, rising as much as 0.58 percent to a nine-month high of $688.50 an ounce.
"Palladium still enjoys the strongest supply/demand fundamentals (among the major precious metals)," consultancy Metals Focus said in a report.
"As a result ... the longer-term prospects for palladium prices still appear encouraging."
The platinum/palladium ratio is around the lowest since the start of 2016.
Platinum was up 1.34 percent at $1,093 an ounce, while Spot silver was up 0.36 percent at $19.60 an ounce.