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Gold bars are displayed at bullion house in Mumbai in this December 3, 2009 file photograph.ARKO DATTA/Reuters

Gold bulls can't shake the spectre of higher U.S. interest rates as Federal Reserve policy makers gather this week.

Prices are trading near a one-month low, investors are dumping holdings through exchange-traded products (ETPs), and the metal's volatility is rebounding. A resilient U.S. job market and dollar strength are adding to gold's woes, spurring money managers to cut their bets on a rally by more than a third.

More than $2.6-billion (U.S.) was wiped from the value of gold ETPs in the past three weeks as investors awaited the central bank meeting. While Fed-fund futures show lowered expectations for monetary tightening this week, traders are still pricing in more than a 50 per cent chance for a rate increase by the end of the year. Higher borrowing costs reduce bullion's allure because it doesn't pay interest, unlike competing assets such as bonds.

"The likelihood is the Fed moves this year, and for now a tighter Fed and stronger dollar are both keeping a lid on gold," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $127-billion. "When I look at the gold market, that's the biggest overriding factor."

December futures added 0.49 per cent to settle Monday at $1,108.20 an ounce on the Comex in New York. Prices slid 1.6 per cent last week.

Speculators cut their net-long position by 36 per cent to 28,286 futures and options in the week ended Sept. 8, according to U.S. Commodity Futures Trading Commission data published three days later. Bearish wagers climbed 18 per cent to 87,815 contracts, the first gain since July 21.

A divergence between gains for the U.S. economy and cooling growth in Asia and Europe means the Bloomberg dollar spot index is heading for a third year of increases, the longest streak since data for the measure begin in 2004. Gold often moves inversely to the greenback and is poised for a third straight annual loss. BNP Paribas SA said gold will continue to fall against the backdrop of a strengthening U.S. dollar. The bank sees prices reaching $925 by the third quarter of 2016, according to a Sept. 10 report.

It's been a tough two years for investors in gold, which first fell into a bear market in April, 2013. More than $54-billion has been wiped since then from the value of global ETPs, or securities that are physically backed by bullion and linked to the price of the metal. Gains in the U.S. job market are showing that the economy is strong enough to withstand higher interest rates and cutting demand for the metal as a haven. For the last six months, first-time unemployment claims have been below the 300,000 level that economists associate with a healthy labour market.

Holdings in bullion ETPs fell 4.4 tonnes last week to 1,517.3 tonnes. The assets reached 1,508.2 tonnes on Aug. 11, the lowest since 2009.

"Things aren't bad enough to require gold as the end-of-the-world safe haven," said Frances Hudson, an Edinburgh-based global-thematic strategist at Standard Life Investments who oversees $393.1-billion.

While the U.S. central bank is looking to raise rates, monetary policy is still loose in other parts of the world, boosting the metal's appeal as a store of value.

China's currency devaluation last month came as policy makers there place more emphasis on combatting the deepest economic slowdown since 1990. European Central Bank president Mario Draghi signalled this month that he may expand stimulus.

"There's going to be a significant opportunity with prices down here, because I think with all this currency devaluation, people are going to run to gold eventually," said Jeffrey Sica, who oversees $1.5-billion as the president of Circle Squared Alternative Investments in Morristown, N.J.