Gold edges higher as yields retreat, Fed decision in focus

By Anushree Mukherjee

Oct 21 (Reuters) - Gold prices edged higher on Wednesday, rebounding from a near one-week low hit earlier in the session as weaker US Treasury yields lent support, while investors awaited next week's Federal Reserve meeting.

Spot gold was up 0.3% at $4,137.94 per ounce by 2:12 p.m. EDT (1812 GMT) after hitting its lowest since October 15 in earlier trade. US gold futures for December delivery settled 0.2% higher at $4,150 per ounce.

The benchmark US 10-year Treasury yield fell for a second consecutive session, reducing the opportunity cost of holding non-yielding gold.

Investors are now focused on the Fed’s October 27-28 policy meeting and next week’s US Personal Consumption Expenditures (PCE) report for clues on future rate moves.

"I think the market is currently expecting one 25-basis-point rate hike this year, but probably not until December. The likelihood of an October rate hike has dropped pretty significantly," said Peter Grant, vice president and senior metals strategist at Zaner Metals.

"I think gold prices will be range-bound for the time being. But I think the bias remains to the downside."

Markets are pricing in an 88% chance that the Federal Reserve will raise interest rates in December, according to CME's FedWatch Tool.

Nearly all economists surveyed by Reuters expect the Federal Reserve to hold rates steady this month and raise them in December, as policymakers choose patience despite persistent inflation that would ordinarily warrant tougher action.

Although gold is traditionally considered an inflation hedge, higher rates dent its appeal as investors prefer yield-bearing assets.

"I would still believe in the short term, gold is in consolidation mode. So whenever we go below 4,100, it's bottoming out because there is buying interest, but the upside remains limited as long as the conflict in the Middle East is somehow still a topic," said Giovanni Staunovo, an analyst at UBS.

Meanwhile, oil prices were little changed as investors weighed possible progress toward Russia-Ukraine talks against declining US oil stocks and a lack of US-Iran dialogue. O/R

Among other metals, spot silver slid 0.4% to $57.73 per ounce, platinum fell 0.9% to $1,633.65 and palladium dropped 0.9% to $1,092.75.