Gold recovers poise ahead of Fed meeting

The meeting will be watched for clues on the future pace of US rate increases after the central bank hiked rates

Gold rose on Monday as previous session's near 2% loss tempted some price-sensitive buyers back to the market, but moves were muted ahead of closely watched policy meetings of the US and Japanese central banks this week.

The metal, which is highly sensitive to monetary policy and resulting currency moves, bounced to a 13-month high on Friday after the European Central Bank signalled an end to rate cuts, pushing the euro sharply higher versus the dollar.

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It later fell back to post its biggest one-day loss in nearly a month, but has since rebounded as uncertainty ahead of this week's central bank meetings sharpened appetite for the metal as a haven from risk.

Spot gold was up 0.8% at $1,257.66 an ounce, while US gold futures for April delivery were down 70 cents an ounce at $1,258.70.

The Federal Reserve's two-day policy meeting, starting on Tuesday, will be watched for clues on the future pace of US rate increases after the central bank hiked rates for the first time in nearly a decade in December.

"It's going to be rather cautious until the Federal Open Market Committee comes out with their statement," MKS' head of trading Afshin Nabavi said.

"There's a lot of selling on the physical front coming in, but there is also buying to support the market. If there are no sunrises from the FOMC or the Bank of Japan, I'm sure we will head towards the $1,275, $1,280 level."

Further US rate hikes could lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The metal has risen 18 percent this year as expectations for further near-term hikes faded.

Investors are also keeping a watch on the Bank of Japan meeting. The BOJ's policy board is set to discuss this week whether to exempt $90 billion in short-term funds from its newly imposed negative interest rate.

Hedge funds and money managers increased their bullish position in COMEX gold to the highest in 13 months in the week to March 8, US Commodity Futures Trading Commission data showed on Friday, as safe-haven buying lifted prices to the highest since February 2015.

"This was the eighth increase in net long positions in the last nine weeks," Commerzbank said in a note. "Since the beginning of the year, the equivalent of 481 tons of gold have thus been purchased via the futures market."

Silver was up 1.2% at $15.65 an ounce, while platinum was up 0.6% at $966.49 an ounce and palladium was down 0.4 percent at $569.20 an ounce.