By Jan Harvey
LONDON (Reuters) - Gold fell on Tuesday as sharper appetite for risk benefited cyclical assets at bullion's expense, though losses were capped by the dollar's slip to three-week low against a basket of currencies.
Gold rallied to a 2-1/2 month high last week as heightened tensions over Syria and U.S. sanctions on Russia sparked a drop in equities and ratcheted up interest in nominally defensive assets. Those gains, however, have proved hard to maintain.
Spot gold was down 0.3 percent at $1,342.77 an ounce at 1120 GMT, while U.S. gold futures were down 0.5 percent at $1,344.40.
"The story would be different if these disputes prevailed and we got a significant slowdown in leading indicators. But it doesn't seem to me that anybody is really afraid of a material deterioration in the economic backdrop."
A gradual return of risk appetite lifted world shares on Tuesday, with European stocks climbing 0.4 percent to erase the previous session's losses.
The U.S. yield curve reached its flattest in more than a decade on Monday after the White House said that U.S. President Trump would nominate Richard Clarida as Federal Reserve Vice Chairman, another hawkish voice at the central bank.
A flatter yield curve typically indicates that the Fed is planning to lift interest rates in the near term and is often understood to signal concern over the macroeconomic outlook. Higher rates tend to weigh on non-yielding bullion.
The euro hit a three-week high on Tuesday as solid Chinese economic data and receding fears of more U.S. strikes in Syria revived risk sentiment, weakening the dollar.
Among other precious metals, silver was up 0.1 percent at $16.62 an ounce, while platinum was 0.1 percent higher at $924.90.
Palladium was down 1.6 percent at $985.97 an ounce after hitting its strongest since March 1 the day before at $1,012.10 an ounce.
"Palladium has gained by $100, or 11 percent, since the U.S. sanctions were announced on April 6," Commerzbank said in a note.
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