Gold steadies ahead of Fed meeting, expected U.S. rate rise

By Maytaal Angel

LONDON (Reuters) - Gold prices steadied on Tuesday, weighed down by expectations for a rise in U.S. interest rates that boosted the dollar but supported at the margins by political risks in Europe.

The dollar index climbed by about 0.3 percent, making dollar-priced gold costlier for non-U.S. investors.

With a rate increase by the Federal Reserve seen as a done deal, investor focus is shifting to what message the U.S. central bank will deliver when it concludes its meeting on Wednesday. In December the Fed forecast three rate rises this year.

Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

Spot gold edged up by 0.1 percent to $1204.53 an ounce at 1502 GMT as investors took a wait and see approach ahead of the Fed meeting. U.S. gold futures were up 0.1 percent at $1,204.30.

"We see some stabilisation (in gold). The Fed hikes are roughly priced in. Real yields are not rising that fast. Therefore, gold is protected on the downside," ABN Amro analyst Georgette Boele said.

Gold hit a five-week low on Friday but recovered quickly after a U.S. non-farm payrolls report failed to meet elevated expectations, weighing on the dollar. Gold's brisk recovery on Friday underlined its resilience, Boele said.

Elsewhere, investors are focusing on Wednesday's Dutch elections, which are boosting gold's safe-haven appeal.

The anti-Islam Party for Freedom is seen as having little chance of coming to power, but a strong election performance for the group would fuel worries over a surprise result in French presidential elections in April and May.

In Britain, concerns have increased over a second Scottish independence referendum and the triggering of Article 50, which will formally begin British negotiations to leave the European Union.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.83 percent on Monday. [GOL/ETF]

"Leading into Wednesday's (Fed) decision, participants will be looking for gold to initially hold $1,200, while below this, broad interest around $1,190-$1,195 is expected to restrict further declines," said MKS PAMP Group trader Sam Laughlin.

Silver edged up by 0.2 percent to $16.98 an ounce, platinum dipped 0.1 percent to $939.40 and palladium was down 0.2 percent at $747.75.

(Additional reporting by Arpan Varghese in Bengaluru; Editing by Dale Hudson and David Goodman)