Gold holds steady; market awaits cues from Fed meeting

By Nithin ThomasPrasad

BENGALURU (Reuters) - Gold held steady on Tuesday as investors remained cautious ahead of a two-day U.S. Federal Reserve meeting that is likely to provide hints on the central bank's interest rate policy for the remainder of the year.

The Fed is widely expected to hike interest rates during the policy meeting beginning Tuesday, but the focus is on whether the central bank thinks the U.S. economy is robust enough to withstand further rate increases through 2017.

"If they are not hawkish, gold could be stable for a little while because there seems to be a bit too much longs in the market," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

While a rate hike in the meeting is a given, people are waiting to hear if the Fed could raise rates again in September or any other time, Leung noted.

Spot gold was down 0.1 percent at $1,264.01 per ounce at 0805 GMT. Earlier in the session, it hit a low of $1,262.61, its weakest since June 2.

U.S. gold futures for August delivery dropped 0.2 percent to $1,266.30.

"While the market broadly expects another two hikes in rates in 2017, the tone of the FOMC (Federal Open Market Committee meeting) could set the stage for further weakness in the short term," ANZ bank said in a note.

Higher rates could boost the dollar, making commodities priced in the greenback more expensive for holders of other currencies.

"Depending on the central bank's wording, market reaction could be intense and so we would rather watch the action from the sidelines for the time being," said INTL FCStone analyst Edward Meir, adding that they remained neutral on gold, heading into the meeting.

Among other precious metals, palladium hovered near the 16-year high hit on Friday, and was last seen up 0.4 percent to $899.25 an ounce.

Silver slipped 0.3 percent to $16.87 per ounce. In the previous session, it slid 1.4 percent to its biggest one-day percentage decline since May 18. The metal hit a three-week low of $16.80 an ounce on Monday.

Platinum climbed 0.2 percent to $938.50 per ounce.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by Sunil Nair and Sherry Jacob-Phillips)