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Gold prices dipped on Tuesday, weighed down by a firmer dollar and elevated U.S. bond yields, as the Federal Reserve gears up for a hefty rate hike to tame inflation pressures.

Spot gold fell 0.5% to $1,668.30 per ounce by 1107 GMT. U.S. gold futures were little changed at $1,676.60.

"Gold is under pressure, it remains close to the two-year low that it touched on Friday and the main reason for this is the strong dollar," said Ricardo Evangelista, senior analyst at ActivTrades.

"The Fed decision is coming up tomorrow (Wednesday) and expectation is for a 75 basis points rate hike. However, there is an outside chance that we could see a 1% hike and if this was to happen, I think there would be more downside for gold."

The dollar remained firm near a two-decade high, making gold less appealing for other currency holders. Benchmark 10-year U.S. Treasury yields were hovering near their highest level since 2011. [USD/] [US/]

The Fed at the conclusion of its two-day policy meeting on Wednesday will likely deliver its third straight super-sized 75 basis point interest rate hike.

The Bank of England and the Bank of Japan will decide policy on Thursday. Central banks around the world continue their fight against soaring inflation.

Although gold is considered a hedge against inflation, higher interest rates lift the opportunity cost of holding zero-yield bullion.

Indicative of sentiment, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have dropped to their lowest since March 2020. [GOL/ETF]

Gold could be in for a lot more turbulence this week considering the scale of tightening that's coming, Craig Erlam, senior market analyst at OANDA said in a note.

Spot silver fell 1.7% to $19.27 per ounce, while platinum rose 0.3% to $922.15.

Palladium slipped more than 3% to $2,147.87.