NEW YORK/LONDON:

Gold prices rose on Tuesday, following rallies in equities and industrial metals, but selling pressure ahead of a US option expiration and a US Federal Reserve monetary-policy meeting capped gains.

Bullion, which has tended to track riskier assets, climbed as US equities measured by the Dow rose sharply after strong earnings from bellwether US companies and a mildly encouraging US home sales report.

Trading volume has been below average for a third consecutive day, as some gold investors reduced their bullish positions ahead of the outcome of the two-day Fed Open Market Committee meeting on Wednesday.

A brighter US economic outlook and fading US easing hopes have weighed heavily on gold.

However, price volatility could spike ahead of Wednesday's May COMEX options expiry, as both call and put options investors look to profit from their heavy bets at the $1,650 strike price.

There are currently around 10,000 lots in calls and around 30,000 contracts in puts at the popular price, traders said. "Right now, the long-put buyers have the control because they are in the money," said Anthony Neglia, president of Tower Trading and a COMEX gold options floor trader.

"If the put buyers are under-hedged, they are going to buy some gold. Conversely, for the short put sellers, if they are under-hedged, they are going to sell some gold. So we maybe trapped in this range," he said.

Spot gold was up 0.2 per cent at $1,640.76 an ounce by 12:20 p.m. EDT (1620 GMT), while US gold futures for June delivery were up $9.10 an ounce at $1,641.70. -Reuters