Gold treads water ahead of two-day Federal Reserve meeting

By Swati Verma

BENGALURU (Reuters) - Gold was little changed on Tuesday, after inching up in the previous session, ahead of a key meeting of the U.S Federal Reserve that begins later in the day.

Spot gold was steady at $1,162.40 an ounce by 0242 GMT, after climbing 0.4 percent on Monday.

U.S. gold futures were down 0.1 percent at $1,165.

Spot prices recovered from a 10-month low of $1,151.34 an ounce touched in the previous session as U.S. Treasury yields came off their highs and the U.S. dollar fell ahead of the Federal Reserve meeting.

The dollar eased against the yen on Tuesday, coming off a 10-month high, as a surge in Treasury yields was tempered for the time being. The U.S currency was also capped by the prevailing wait-and-see mood ahead of the Fed meet.

"With 3 percent growth, inflation picking up and an incoming administration that is not that impressed with the job the Fed is doing, we could see the central bank signalling a much more hawkish tone going forward," INTL FCStone analyst Edward Meir said in a note.

"If we are correct, we should see a rise in rates and a stronger dollar - the two could spark a fresh selloff in gold to the $1,140 level we are targeting for the precious metal for some time in December."

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

"With the increasing likelihood that the Fed will hike rates at the FOMC meeting later this week, investors continue to offload the precious metal," ANZ said in a note. The Fed is widely expected to raise interest rates for the first time in 2016 at a two-day meeting, with markets pricing in a nearly 100 percent chance of a quarter percentage point increase to the Fed's target range of 0.25 to 0.50 percent.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.14 percent to 856.26 tonnes on Monday from Friday.

Among other precious metals, silver was up 0.2 percent at $17.10 an ounce, after rising nearly 1.4 percent in the previous session.

Platinum shed 0.6 percent to $925.70. The white metal fell as much as 1.9 percent in the previous session.

Palladium was 0.1 percent higher at $722.90, having fallen more than one percent on Monday.

(Reporting by Nallur Sethuraman and Swati Verma in Bengaluru; Editing by Joseph Radford and Richard Pullin)