LONDON: Gold rose on Tuesday as the dollar slipped ahead of a two-day Federal Reserve policy meeting this week, which will be closely watched for clues on the outlook for US interest rates.

The Fed is expected to leave policy unchanged at its meeting starting later in the day, but investors are watching for any signs that the US central bank may move back to tightening later this year.

Spot gold was up 0.5 percent at $1.321.57 an ounce at 0930 GMT, while US gold futures for August delivery were up $1.90 an ounce at $1,321.40.

"Looking at Fed funds futures, no one is really expecting a move this week, but what the meeting may do is give us more of a clue as to what might happen in September, and perhaps in November and December," Mitsubishi analyst Jonathan Butler said.

"It does still look like there could be a rate rise before the end of the year," he said. "That is consistent with the improving economic situation, particularly the strong employment data for June, and there are also sighs that inflation is starting to pick up as well."

Gold is highly sensitive to rising US interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

A scaling back of expectations for further increases in US interest rates, which rose for the first time in nearly a decade in December, has helped push gold up 24 percent this year.

The dollar fell a quarter of a percent against a currency basket, largely due to a bounce in the yen after traders dialled back expectations of how much new stimulus Japanese authorities will inject into an ailing economy.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 0.46 percent to 958.69 tonnes on Monday.

A surge in Western investment helped offset sliding Asian demand in the second quarter, GFMS analysts at Thomson Reuters said on Tuesday, as they hiked their gold price forecast for the year in response to jitters over the economic outlook.

Top consumer China's net gold imports via main conduit Hong Kong fell 38.5 percent in June, data showed on Tuesday.

"Gold exports from China to Hong Kong reached a 6-month high of 12.2 tons in June, which contributed to lower net imports," Commerzbank analyst Carsten Fritsch said.

Palladium was down 0.2 percent at $683 after touching a nine-month high of $688 in Asian trading hours.

Silver was up 0.8 percent at $19.68 an ounce, while platinum was 0.7 percent higher at $1,085.20 an ounce.