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Gold stalls as pre-Fed verdict jitters grip investors

Marked ingots of 99.99 percent pure gold are placed in a cart at the Krastsvetmet non-ferrous metals plant in Krasnoyarsk

By Ashitha Shivaprasad

(Reuters) - Gold prices were stuck in a narrow range on Tuesday, as lower Treasury yields amid lingering recession woes offset a firmer dollar, while investors turned their attention to the U.S. Federal Reserve's two-day meeting.

Spot gold eased 0.1% to $1,716.91 per ounce by 1:50 p.m. EDT (1750 GMT). U.S. gold futures settled down 0.1% at $1,717.70.

U.S. Treasury yields fell sharply, as a looming gas supply crisis in Europe kept the markets on edge about global recession risks. [US/]

"The relief we've seen in yields is a good sign for gold... persistent fear in the equities market, geopolitical issues and if the energy squeeze intensifies, there will be strong demand for safe-haven," Edward Moya, senior analyst with OANDA, said.

But "if investors feel the Fed is still ready to deliver another 75 bps hike in September, that's going to be trouble for gold."

The International Monetary Fund cut global growth forecasts again, warning that downside risks from high inflation and the Ukraine war were materializing.

But capping gold's gains, the U.S. dollar rose 0.7%, making bullion less appealing for overseas buyers. [USD/]

Since gold in a non-interest yielding asset, rising interest rates make it less appealing. However, gold is widely regarded as an inflation hedge and safe-store of value amid economic uncertainties.

The market expects the Fed to increase rates by 75 basis points at the conclusion of its policy meeting on Wednesday. A hike of that magnitude would effectively close out pandemic-era support for the economy.

"We expect a further lift to real interest rates this year, particularly as inflationary risk fades in the second half of 2022. As such, additional liquidation of exchange-traded funds can be expected," UBS analyst Giovanni Staunovo said, forecasting gold to fall to $1,600 by year-end.

Spot silver rose 1.1% to $18.61 per ounce, platinum was down 0.7% at $872.63.

Palladium fell 0.2% to $2,004.00.

(Reporting by Ashitha Shivaprasad and Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber and Andrea Ricci)

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