Gold steadies as traders await Fed rate rise decision

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Gold steadied on Tuesday, arresting the previous day's one percent slide as the two-day U.S. Federal Reserve meeting began and was expected to lead to an interest rate hike for the first time in nearly a decade.

The central bank's Federal Open Market Committee (FOMC) is expected to announce the increase at the end of its policy meeting on Wednesday at 2 p.m. ET (1900 GMT), but has hinted that it intends to raise rates only gradually from there.

Gold could bounce higher after the move as attention switches from the timing of the first rise to the pace of tightening, analysts said.

Spot gold was down 0.2 percent at $1,060.60 an ounce. U.S. gold futures for February delivery settled down 0.2 percent at $1,061.60 an ounce.

Gold has fallen 10 percent this year, largely on the back of expectations of a U.S. rate increase. Rising rates increase the opportunity cost of holding bullion rather than interest-bearing assets.

"The market is waiting with bated breath for what the Fed's going to say and how they're going to say it," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle.

The dollar recovered from an earlier six-week low against a basket of currencies after data showed underlying inflation pressures rose in the United States last month.

"The market is well-positioned for all the data they have at this point. The real issue is, what do they say about the path after?" Haworth said.

Global equity markets rallied as oil prices bounced from multi-year lows.

"The consensus is that the Fed is going to finally press that button and will raise the interest rate tomorrow," Ava Trade chief market analyst Naeem Aslam said. "However, gold traders are not feeling any panic."

On Monday, gold prices in India swung to a discount as jewelers and dealers in the world's second-biggest consumer postponed purchases ahead of the Fed meeting.

"Liquidity is starting to noticeably dry up, from both the upcoming FOMC and the approach of the Christmas holidays, which will likely only get worse in the coming two weeks," MKS said in a note.

Among other precious metals, spot palladium saw the biggest gains and was up 3.1 percent at $561.48 an ounce.

Silver was up 0.5 percent at $13.77 an ounce, after a six-day losing streak took it to an August 2009 low, while platinum was up 0.7 percent at $854.45 an ounce.