Gold rises from near 5-month low ahead of Fed meeting

By Zandi Shabalala

LONDON (Reuters) - Gold prices inched higher on Tuesday but were still hovering near their lowest in almost five months ahead of a widely expected U.S. interest rate increase this week.

Spot gold was slightly higher at $1,242.31 an ounce by 1240 GMT, after hitting its lowest since July 20 at $1,240.10 on Monday.

U.S. gold futures fell 0.1 percent to $1,246.30 an ounce.

With an interest rate rise expected, the market is watching the U.S. central bank's two-day meeting for clues of the Federal Reserve's future rate path.

"The rise is already in the price so it's more about the outlook the Fed gives," said ABN Amro commodity strategist Georgette Boele.

"Ahead of the Fed meeting, markets are relatively calm because they don't want to get on the wrong foot."

Gold is sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion and boost the dollar, in which it is priced.

Analysts at Standard Chartered noted that gold would likely recover quickly from its recent lows if the meeting outcome proves to be a dovish hike.

In wider markets, world stocks paused following gains for three straight sessions, while the dollar was steady after its recent strong gains.

Oil rose above $65 a barrel for the first time since mid-2015 as an unplanned shutdown of the UK's biggest North Sea oil pipeline supported a market already tightened by OPEC-led production cuts.

"(The) opportunity cost of holding gold is going up because if you hold gold then you miss the opportunity of higher equity prices or maybe higher bitcoin prices," said Societe Generale's head of metals research Robin Bhar.

"Gold doesn't have a lot of love going forward at the moment."

Among other precious metals, silver rose 0.4 percent to $15.77 an ounce.

Platinum was steady at $884.25 an ounce, having fallen for the last seven sessions. It touched its lowest since February 2016 at $878.50 on Friday.

Platinum is more heavily used in diesel vehicles, which have fallen out of favour since Volkswagen's emissions-rigging scandal.

Its sister metal, palladium, has benefited from the switch to petrol engines and expectations for growth in hybrid gasoline-electric vehicles.

Palladium was 0.3 percent lower at $1,007.12 an ounce.

The platinum discount to palladium widened to around $120 last week, the steepest since April 2001.

(Additional reporting by Apeksha Nair in Bengaluru, editing by David Evans and Louise Heavens)