Spot gold fell again by 0.7 percent to $4047.22 per ounce, approaching $4040 and erasing the modest gains from the previous session. Silver fell by 1.7 percent to $57.39, and platinum and palladium also traded lower. The dollar index saw a slight increase.

The decline comes ahead of the potentially contentious Federal Reserve rate decision expected later this week, while the fragile pause in hostilities in the Middle East has eased inflation concerns. Traders are positioning themselves ahead of the Fed's decision on Wednesday, as central bank officials grapple with a softer-than-expected June inflation report and the recent rise in oil prices amid escalating hostilities between the US and Iran.

The level of uncertainty leading up to this meeting is unusually high by recent years' standards. Interest rate swaps are pricing in about a 40 percent chance of a 25 basis point hike. However, even if the Fed keeps rates unchanged, a hawkish tone or a clear signal that further tightening remains on the table could support real yields and the dollar, temporarily limiting gold's recovery.

The scale of gold's decline since the onset of the conflict remains significant. Since the start of the US-Iran war five months ago, the metal has dropped nearly a quarter as high energy prices fueled inflationary pressures. Nevertheless, since late June, the metal has remained around the key support level of $4000, aided by a wave of buying on dips. According to the latest data, gold-backed exchange-traded funds have seen asset increases for five consecutive days, the longest influx streak since May, indicating sustained institutional interest even amid price weakness.

However, the anticipation of higher rates continues to keep gold under pressure.

Regarding the current technical picture for gold, buyers need to take the nearest resistance at $4062. This would allow targeting $4124, above which it will be quite challenging to break. The furthest target will be in the $4186 area. If gold falls, bears will attempt to take control at $4008. If successful, breaking this range would deal a severe blow to the bulls' positions and push gold down to a low of $3954, with the prospect of reaching $3906.