By Maytaal Angel
LONDON (Reuters) - Gold prices steadied on Tuesday, weighed down by expectations for an interest rate rise by the U.S. Federal Reserve that boosted the dollar but supported at the margins by political risks in Europe.
The dollar index climbed by about 0.3 percent, making dollar-priced gold costlier for non-U.S. investors.
With a Fed rate increase seen as a done deal, investor focus is shifting to what message the U.S. central bank will deliver when it concludes its meeting on Wednesday. In December, the Fed forecast three rate rises this year.
Gold is highly sensitive to rising U.S. interest rates as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Spot gold was unchanged at $1,203.61 per ounce at 1254 GMT as investors took a wait and see approach ahead of the Fed meeting. U.S. gold futures were steady at $1,203.70.
"We see some stabilisation (in gold). The Fed hikes are roughly priced in. Real yields are not rising that fast therefore gold is protected on the downside," ABN Amro analyst Georgette Boele said.
Gold hit a five-week low on Friday but recovered quickly after a U.S. non-farm payrolls report failed to meet elevated expectations, weighing on the dollar. Gold's quick recovery Friday underlined its resilience, Boele said.
Elsewhere, investors are focusing on Wednesday's Dutch elections, which are boosting gold's safe have appeal.
The anti-Islam Party for Freedom is seen as having little chance of coming to power, but a strong election performance for the populist group would fuel worries over a surprise result in French presidential elections in April and May.
In Britain, concerns have increased over a second Scottish independence referendum and the triggering of Article 50, which will formally begin negotiations to exit the European Union.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.83 percent on Monday. [GOL/ETF]
"Leading into Wednesday's (Fed) decision, participants will be looking for gold to initially hold $1,200, while below this broad interest around $1,190-$1,195 is expected to restrict further declines," MKS PAMP Group trader Sam Laughlin said.
Silver was flat at $16.94 per ounce.
Platinum dipped 0.16 percent at $937.50 an ounce, while palladium fell 0.82 percent to $746.20.
(Additional reporting by Arpan Varghese in Bengaluru; Editing by Dale Hudson and David Evans)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)