A man displays jewelry at a store in Riyadh.

Gold held near $1,080 an ounce on Tuesday after a two-day rally, benefiting from a retreat in the dollar, though uncertainty over the pace of US interest rate increases capped the gains.

The metal has risen around 3 percent since touching its lowest in almost six years last week after the Federal Reserve announced its first rate rise in nearly a decade.

“Gold is going to remain rangebound for now… (it is) being supported by the dollar weakness,” ETF Securities analyst Martin Arnold said.

Spot gold stood at $1,075.50 an ounce at 1529 GMT, little changed from $1,078.06 late on Monday, while US gold futures for February delivery were down $5.40 at $1,075.30.

“Going into next year, there’s probably a bit of downside risk because investors are not yet focusing on the potential for interest rates to remain stable,” Arnold said.

Rising interest rates boost the opportunity cost of holding non-yielding gold, while lifting the dollar, in which it is priced. Expectations that rates would rise have pushed down gold by 9 percent in 2015, though it has steadied towards the end of the year.

Hedge funds held a record short position going into last week’s Fed hike and have been reducing their negative exposure in recent days, Saxo Bank said in a note.

“When you get close to the end of the year, liquidity is getting smaller and people start closing the trades they have had for the year,” ABN Amro analyst Georgette Boele said. “One of them was short euro, long dollar, short gold.”

“We probably didn’t get as low as some people may have wanted, so they’re closing (their trades) and they’ll try again next year,” she said.

The dollar fell 0.3 percent against the euro on Tuesday after data showed a surprisingly large drop in US home resales last month.

The Fed has linked the pace of future rate rises to the strength of US data.

While gold drew support from a big rise in holdings of the top gold exchange-traded fund (ETF) late last week, a resumption in outflows this week indicated that investors remain cautious.

SPDR Gold Shares’ assets rose by nearly 19 tonnes on Friday, the biggest in four years, but that was followed by outflows of 3 tons on Monday.

Silver was up 0.4 percent at $14.31 an ounce, while platinum was down 0.5 percent at $867.65 and palladium gained 1.2 percent to $556.85.

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