By Arpan Varghese
(Reuters) - Gold firmed slightly on Tuesday as the dollar gave up some of its recent gains and U.S. Treasury yields retreated, with traders awaiting further direction from the Federal Reserve's interest rate hike strategy.
Spot gold rose 0.1% to $1,769.42 per ounce by 1:31 p.m. ET (1831) GMT, while moves remained fairly contained. U.S. gold futures settled up 0.1% at $1,782.4.
"Gold remains tied to the dollar and has found a fresh bid as it weakens," said Ole Hansen, head of commodity strategy at Saxo Bank,
Also, considering the market only lost about 2% on Monday on a day that saw a strong U.S. data print (ISM) and a reduction in ETF holdings, the "gold market still has some underlying strength", Hansen added.
Better-than-expected U.S. services industry data spooked investors on Monday and raised fears that the Fed might stick longer with aggressive rate increases.
As a result, bullion dropped from a five-month high to close 1.6% lower as the dollar rebounded after the data. The greenback is little changed and holding near its lowest since June touched in the last session.
"With the Fed due to meet next week, the direction of prices is likely to be determined on how the U.S. central bank sees the glide path for future rate rises," said Michael Hewson, chief markets analyst at CMC Markets.
The final Fed meeting of 2022 is scheduled on Dec. 13-14.
However, "signs of stronger-than-expected demand may lead markets to revisit more hawkish expectations", said IG Market strategist Yeap Jun Rong.
High rates have dimmed gold's traditional status as a hedge against high inflation and other uncertainties this year to some extent, as they translate into higher opportunity cost to hold the non-yielding asset.
Spot silver fell 0.8% to $22.07 per ounce, while platinum dropped 1% to $987.75. Palladium shed 1.3% to $1,852.38.
(Reporting by Arpan Varghese, Arundhati Sarkar and Ashitha Shivaprasad in Bengaluru; editing by David Evans, Louise Heavens and Nick Macfie)