* Fed begins 2-day policy meeting later on Tuesday
* Palladium hits 12-week high
* Gold may break support at $1,337/oz, fall to $1,324- technicals (Updates prices)
By Brijesh Patel
June 18 (Reuters) - Gold prices rose on Tuesday, as the dollar retreated from multi-week highs ahead of the U.S. Federal Reserve’s two-day monetary policy meeting.
Spot gold gained 0.5% to $1,345.81 per ounce as of 0643 GMT.
U.S. gold futures also climbed 0.5% to $1,349.80 an ounce.
“The overall sentiment in the gold markets is positive. There are expectations that the Fed will cut interest rates, which has weakened the dollar and remains a main driver for prices,” said Helen Lau, analyst, Argonaut Securities.
The dollar index against basket of major currencies was down 0.2% on Tuesday, making bullion cheaper for investors holding other currencies.
The dollar was slightly undermined by the New York Fed’s business index showing a record fall this month to its weakest level in more than 2-1/2 years.
At the current level, there could be some fluctuations in gold prices as there are still some mixed views on the rate cut and some investors are cautious ahead of the Fed’s decision, Lau said.
The Fed’s two-day policy meeting starting later on Tuesday is the next major focus after markets have priced in more than two 25 basis-point rate cuts by year-end.
That marks a sharp contrast to the Fed’s official forecast in March, which showed policymakers deemed the next move would be a hike.
The expectations of an interest cut has been gradually increasing amid the raging U.S.-China trade war, signs of the U.S. economy losing steam and pressure by President Donald Trump to ease policy.
All these factors boosted bullion’s appeal, with the yellow metal gaining nearly 6% since touching its 2019 low of $1,265.85 in early May.
Meanwhile, the U.S. central bank is expected to leave borrowing costs unchanged this time but possibly lay the groundwork for a rate cut later this year.
“We think that the Fed will not raise rates in June and with regards to policy wording, we could see a slightly less accommodative tone than what the market is expecting,” INTL FCStone analyst Edward Meir said in a note.
“In which case the dollar could firm up somewhat further and perhaps pressure gold lower into its trading range.”
On the technical front, spot gold may break a support at $1,337 per ounce and fall to the next support at $1,324, according to Reuters technical analyst Wang Tao.
Among other precious metals, silver was up 0.4% at $14.89 per ounce.
Palladium rose 1.8% to $1,476 per ounce, the level last seen on March 27.
Platinum gained 0.6% to $796.43 an ounce. However, the metal fell to its lowest since May 31 at $786 earlier in the session. (Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu & Uttaresh.V)