Gold prices fell on Tuesday, pressured by the stronger U.S. dollar ahead of an annual meeting of central bankers this week, while palladium fell from its highest level since February 2001.
Spot gold was down 0.4 percent at $1,285.25 an ounce by 2:15 p.m. EDT (1815 GMT), holding near last week's peak at $1,300.80, its highest since early November.
U.S. gold futures settled down 0.4 percent at $1,291.
Investors awaited speeches by European Central Bank President Mario Draghi and U.S. Federal Reserve Chair Janet Yellen on Friday at Jackson Hole, Wyoming, for clues to the direction of interest and currency rates. The firm greenback makes dollar-denominated commodities more expensive for holders of other currencies, which could subdue demand.
"Draghi could take the opportunity to downplay the idea of monetary tightening in the euro zone, which would have a dampening effect on the euro and lift the dollar," said Julius Baer analyst Carsten Menke.
"From the Fed's perspective, we think they are not too concerned about weaker than expected inflation readings...It's pretty clear the Fed needs to raise rates."
The Federal Reserve next meets on Sept. 19-20. Fed funds futures prices show traders see a 42 percent chance of an interest rate increase by the December meeting, with a marginal chance of a rate cut, according to CME Group's FedWatch tool.
"Dovish monetary policy, especially from the Fed, and/or significant escalation of geopolitical risks are potential triggers. We expect the former to have a more durable price impact," said Joni Teves, strategist for UBS, in reference to what could drive gold prices above $1,300.
Preventing deeper losses were tensions between North Korea and the United States. U.S. forces began long-planned joint military drills with South Korea on Monday. North Korea said the drills were a step towards nuclear conflict.
Palladium was down 1.2 percent at $927.75 an ounce, after rising to $940, matching the prior session's peak and the highest level since February 2001.
"Palladium has been pushed up by speculative funds. There is nothing in the fundamentals to justify these levels," a precious metals trader said, adding that a slowdown in U.S. auto sales over coming months would spike the bubble.
Both platinum and palladium are used to make autocatalysts.
But platinum is predominantly used in diesel engines and palladium in gasoline engines, which dominate the U.S. market.