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Gold prices steadied overnight after a sharp fall in the previous session, as investors waited for the US Federal Reserve’s decision on interest rates at its meeting next week.

Spot gold was up 0.1 per cent at $US1,426.44 per ounce.

The metal touched its highest since May 2013 at $US1,452.60 on Friday but closed about 1.5 per cent lower.

US gold futures settled mostly unchanged at $US1,426.90.

“Gold, for most parts, is steady as we are on hold until we get to the Fed meeting. A lot of the move up (in the last week) formed a consolidation pattern,” Edward Moya, a senior market analyst at OANDA said.

“Most people feel there is going to be a 25-basis-point cut, but there is a growing camp that believes we could see a net 50-basis-point cut, which means uncertainty is high and it is going to be difficult to see gold break out until past that event.”

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the US dollar.

The Fed is expected to announce its decision at its July 30-31 meeting.

Markets also expect a dovish policy stance from the European Central Bank when it meets on Thursday.

The likelihood of a 50-basis-point cut soared last week after dovish comments by Fed policymakers.

Those expectations later dwindled after an official clarified that the remarks did not refer to potential policy actions.

US rates futures implied traders positioned for a 72 per cent chance the Fed may lower its rate by a quarter point at its July policy meeting, according to CME Group’s FedWatch tool.

Political tensions in the Middle East were also offering underlying support for bullion, a safe-haven asset, analysts said.

Britain was weighing its next moves in a Gulf tanker crisis on Sunday, with few good options apparent as a recording emerged showing that the Iranian military defied a British warship when it boarded and seized a ship three days ago.

Reflective of sentiment in gold, holdings of SPDR Gold Trust , the world’s largest gold-backed exchange-traded fund, rose 0.7 per cent to 820.49 tonnes on Friday.

Speculators raised their bullish stance in gold and silver in the week to July 16.

Silver rose 1.1 per cent to $US16.39 an ounce, after touching its highest level in more than a year in the previous session.

“After rising from below $US15 to over $US16.50 in just two and a half weeks, we would not be surprised if some market participants were to take profits, thereby prompting a price correction,” Commerzbank analysts said in a note.

Platinum rose 0.7 per cent to $US849.28 and palladium rose 1.4 per cent to $US1,526.50.