- FOMC meeting to begin later in the day
- Dollar hovers near two-week highs
- Risk appetite hurt by Russia-Ukraine worries
- Palladium hits near 10-week high
Jan 25 (Reuters) - Gold fell on Tuesday as the U.S. dollar and Treasury yields gained on expectations of faster U.S. rate hikes, but bullion held above its $1,830 key level as safe-haven assets were still in demand amid escalating tensions over Ukraine.
Spot gold fell 0.4% to $1,836.06 per ounce by 1031 GMT, while U.S. gold futures slipped 0.3% to $1,836.20.
"Despite the Fed likely set to announce the start of a U.S. rate hike cycle this week, gold keeps holding up well. Support for the yellow metal comes from high inflation and elevated market volatility," UBS analyst Giovanni Staunovo said.
"Unless the Fed surprises with an even more hawkish statement, gold (could) stay supported," said Staunovo, adding that historically, gold outperforms equities when market volatility increases.
Risk appetite was dampened on concerns that Russia will invade Ukraine. NATO on Monday said it was putting forces on standby and reinforcing Eastern Europe with more ships and fighter jets.
U.S. benchmark 10-year yields recovered from last session's lows, while the dollar was close to two-week highs ahead of the Fed's two-day policy meeting starting later in the day.
The Fed is expected to signal on Wednesday that it plans to raise rates in March and offer insight into how aggressive the central bank intends to be. Rising interest rates increase the opportunity cost of holding non-interest bearing bullion.
Gradual rate hikes, accompanied by declining inflation, steady economic growth and stable markets may be the ideal scenario for U.S. monetary policy, but this is a difficult path to stay on, BofA Global Research said in a note.
"The risk of a policy mistake is high and rising equity volatility tends to support perceived safe havens, gold included."
Spot silver fell 1.1% to $23.70 an ounce. Platinum slipped 0.8% to $1,019.43.
Palladium rose 1.5% to $2,179.75, having jumped to the highest since Nov. 18.
Reporting by Seher Dareen and Swati Verma in Bengaluru; Editing by Susan Fenton
Source: Reuters