Fed taper talk fears keep gold locked in tight range

Gold was subdued on Tuesday as some investors were wary about the possibility of the US Federal Reserve hinting at an eventual cutting back of stimulus at its policy meeting.

Spot gold edged 0.1% lower to $1,864.86 per ounce by 10:00 a.m EDT (1400 GMT), while US gold futures rose 0.2% to $1,868.70.

"The (gold) market is waiting to hear what the Fed has to say about inflation" said Bob Haberkorn, senior market strategist at RJO Futures, adding while the Fed is unlikely to raise rates, it could be a "big" day for gold traders if they even talk about tapering or raising rates.

While the Fed has repeatedly said that current price spikes are transitory, its two-day meeting ending on Wednesday could feature initial discussions among policymakers about when and how fast to pare back its massive bond-buying program to address inflation.

Any hint of tapering discussions or presence of hawks in the meeting could deal a blow to gold prices, potentially dragging them below the $1,855 level, Lukman Otunuga, analyst at FXTM, said in a note.

Nearly 60% of economists in a Reuters poll said a taper announcement will come next quarter.

Further dimming gold's appeal, the dollar index firmed after hitting a one-month peak and benchmark yields rose, increasing non-yielding gold's opportunity cost.

On the physical front, consultants Metals Focus said decreased buying of bullion by exchange traded funds could limit gold demand this year.

Meanwhile, data showed US retail sales falling more than expected in May, while producer prices rose more than expected.

The data also showed a drop in receipts at auto dealerships.

While lower automobile output due to the global semi-conductor shortage should weigh on platinum and palladium's auto-catalyst demand, concerns over inflation should support the metals, RJO's Haberkorn said.

Elsewhere, silver shed 0.7% to $27.63 per ounce, platinum fell 1.5% to $1,147.65, while palladium rose 0.3% to $2,759.45.