RIYADH: Gold prices fell on Tuesday as traders assessed the likely path of the Federal Reserve's monetary policy after data showed a slump in US manufacturing activity and OPEC+'s production cuts sparked inflationary risks.
Spot gold was down 0.3 percent at $1,978.10 per ounce, as of 0549 GMT. US gold futures dipped 0.2 percent to $1,997.30.
The dollar index was 0.2 percent higher, making bullion expensive for overseas buyers.
Gold in the near term could see "consolidative price action in the absence of a fresh catalyst and as markets monitor the extent of price gains in oil as that may throw a curve ball on inflation outlook and complicate monetary policy decisions," said OCBC FX strategist Christopher Wong.
Bullion is seen as a hedge against inflation, but higher interest rates increase the opportunity cost of holding the non-yielding asset.
Oil prices posted gains with investors' attention shifting to demand trends and the impact of higher prices on the global economy.
Gold prices dropped on Monday after a surprise cut in OPEC+ crude production was announced over the weekend. But prices reversed course to rally by 1 percent as the dollar stumbled following the release of weak US economic data.
US manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged, and could decline further due to tighter credit conditions.
Markets see a 58.7 percent chance of the Fed hiking rates by a quarter point in May. But the likelihood of a rate cut later this year also rose.
"Over the short-term (Q2), we expect gold to be further supported by a scenario where both inflation and interest rates could peak," Edward Meir, a metals analyst at Marex, wrote in a note.
"If we are right, this should send the dollar lower and clear the 'runway' for an additional move higher (for gold)."
Spot silver shed 0.9 percent to $23.79 per ounce, platinum fell 0.3 percent to $982.62 and palladium lost 0.4 percent at $1,453.64.
