Tuesday saw a drop in gold prices below significant levels as demand for safe haven assets was dampened by waning worries over the Israel-Hamas conflict, but traders remained biased in favor of the dollar due to the impending Federal Reserve meeting.

Spot gold slumped by 0.2% to $1,992.88 per ounce, while gold futures dipped by 0.2% to $2,002 per ounce.

Traders started pricing in a lower risk premium from the fight even though the Israel-Hamas battle was still not showing any indications of de-escalation and no other Arab states seemed to be joining in yet. As a result, gold lost some of the gains it had achieved since the start of the war in October.

With the Fed meeting in full view, gold is expected to rise in October. This week, the yellow metal saw a decline as the market's attention was mostly focused on the Fed's Wednesday interest rate announcement.

Given recent indications of sticky U.S. inflation and the economy's resiliency, the central bank is expected to maintain its higher-for-longer approach on rates in addition to maintaining its benchmark rate.

Given that purchasing bullion increases the opportunity cost, such a scenario is predicted to prevent any significant upside for gold. Over the past year, this pattern has put a lot of pressure on gold and prevented any attempts to break beyond the $2,000 per ounce mark.