LONDON (Reuters) - Gold retreated towards $1,240 an ounce on Wednesday as the dollar's recovery from 10-month lows dampened upward momentum in the metal after three straight sessions of gains.
Gold prices had risen 2 percent by late Tuesday from early Friday levels as the collapse of U.S. President Donald Trump's healthcare bill and waning expectations for further rate hikes from the Federal Reserve this year pressured the dollar.
The U.S. currency rose 0.3 percent against the euro on Wednesday, however, taking upward pressure off gold.
Spot gold was at $1,240.55 an ounce at 1453 GMT, down 0.1 percent and off Tuesday's two-week peak of $1,244.56. U.S. gold futures for August delivery were down $1.20 an ounce at $1,240.70.
"With the sluggish dollar yesterday we had a bit of a move on the upside, but there seems to be some light profit taking coming in between $1,243-1,245," MKS's head of trading Afshin Nabavi said.
The U.S. currency remained rangebound, however, with investors wary of making strong bets ahead of major central bank meetings.
Expectations that U.S. monetary policy is on a tightening path kept gold hemmed into a narrow range in the last quarter after a strong start to the year. Signs that central banks in Europe and elsewhere are also turning away from ultra-loose monetary policies have also weighed on the precious metal.
Gold is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion. Rising U.S. rates also lift the dollar, in which gold is priced.
"Up until today the dollar has been weakening quite a bit, which has been supportive for gold. Today, we've seen the dollar a bit stronger, so we're seeing some weakness," ING analyst Warren Patterson said.
The bank has a more optimistic view of gold prices as the year progresses, he said. "We believe a large part of the interest rate hike (and) monetary tightening expectations are already priced in, so we don't think that should weigh too much more on gold prices."
Investment appetite for gold showed signs of softness, with holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, falling 5.6 tonnes to 821.45 tonnes on Tuesday, a low since early February.
Among other precious metals, silver was flat at $16.25 an ounce, off an earlier two-week high of $16.362.
Platinum was 0.2 percent higher at $923.50 an ounce after marking its highest since mid-June on Monday, while palladium was up 0.6 percent at $868.75 an ounce.
(Reporting by Jan Harvey; Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru, Editing by David Evans and Mark Potter)