Gold edges up as dollar eases; markets brace for Fed meeting

By Apeksha Nair

REUTERS - Gold inched up from its lowest in over two weeks on Tuesday as the dollar shed some gains, while the market's focus turned to a two-day Federal Reserve meeting that kicks off later in the day.

Spot gold was up 0.2 percent at $1,308.80 an ounce by 0404 GMT, after dropping to its lowest level since Aug. 31 in the previous session.

U.S. gold futures for December delivery edged up 0.1 percent to $1,312.20 an ounce.

"Even though gold still seems to be in a bullish trend, I think we'll probably test $1,300 first and then you'll see fresh speculative buying coming back in," a Hong-Kong based trader said.

"Overall risk-on sentiment and the dollar strength seem to be driving gold lower. Generally, people are not buying into gold because stock markets are higher."

Asian shares wavered on Tuesday, after touching a decade high on the previous day, hobbled by uncertainty as traders waited on the Fed meeting for clues on U.S. monetary policy.

At the Federal Open Market Committee meeting, the U.S. central bank is widely expected to announce plans to trim its balance sheet but hold off raising interest rates for now.

The dollar eased 0.1 percent versus the yen on Tuesday, but hovered near an eight-week high, supported as U.S. treasury yields continued to climb after signs of firming inflation.

Markets will also be watching for clues on the timing of the Fed's next interest rate hike as these tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

"In all likelihood, gold will remain under some selling pressure into tomorrow's FOMC and will be particularly sensitive to moves on the U.S. yield curve," said Jeffrey Halley, a senior market analyst at OANDA.

Meanwhile, ongoing rifts between the United States and North Korea are likely to take centre stage at the U.N. General Assembly meeting on Tuesday where President Donald Trump is set to speak for the first time.

The U.S. military staged bombing drills with South Korea over the Korean peninsula and Russia and China began naval exercises ahead of the U.N. meeting where North Korea's nuclear threat is likely to loom large.

Spot gold may drop to $1,299 per ounce, as it has broken a support at $1,309, said Reuters technical analyst Wang Tao.

In other precious metals, silver was down 0.4 percent percent at $17.14 an ounce.

Platinum fell 0.3 pct to $956.45 an ounce, while palladium lost 0.4 percent at $932.02.

(Reporting by Apeksha Nair in Bengaluru; Editing by Joseph Radford and Richard Pullin)