Gold edges up after worst day in a year, Fed eyed

By Manolo Serapio Jr

SINGAPORE (Reuters) - Gold edged higher on Tuesday after falling more than 2 percent the session before in its deepest slide in over a year following a sustained slump in oil prices.

Apart from oil, investors are eyeing the Federal Reserve's two-day policy meeting which kicks off on Tuesday for clues on the timing of an increase in U.S. interest rates.

The U.S. economy has strengthened and jobs have been created at a faster-than-expected clip since the Fed's last meeting in October, when it reiterated that benchmark rates were unlikely to rise for a "considerable time".

Officials will have to decide whether to replace that phrase despite below-target U.S. inflation and economic weakness in Europe and Asia.

"You're likely to see a volatile market if they don't drop the 'considerable time' phrase," said Victor Thianpiriya, analyst at Australia and New Zealand Banking Group, who sees gold possibly heading to $1,180 by year-end.

Spot gold was up 0.2 percent at $1,194.56 an ounce by 0324 GMT. The precious metal lost 2.5 percent on Monday, giving up all of last week's gains as oil prices tumbled to fresh 5-1/2-year lows, cutting's gold's draw as a hedge against oil-fueled inflation.

Monday's drop was the biggest for spot gold in a single day since Dec. 2, 2013.

U.S. gold for delivery in February slipped 1 percent to $1,195.30 an ounce, stretching losses to a fifth session.

INTL FCStone analyst Edward Meir believes the Fed will keep the 'considerable time' phrase in its statement to be issued on Wednesday, saying policymakers may prefer to wait and see "whether the U.S. economy will get caught in the undertow of slowing global growth".

"If we are correct in our assessment, we should see the dollar weaken from here and give commodities a slight lift, so we likely would want to stay long gold going into the release, perilous as the short-term looks for the moment," Meir said in a note.

(Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)