Gold dips as Fed rate hike looms, US bond yields firm

Gold prices edged lower on Wednesday, as an uptick in U.S. Treasury yields and an impending hike in interest rates by the U.S. Federal Reserve dented demand for zero-yield bullion.

FUNDAMENTALS
* Spot gold was down 0.1% at $1,865.31 per ounce, as of 0040 GMT. U.S. gold futures fell 0.2% to $1,866.10.

* Benchmark U.S. 10-year Treasury yields on Wednesday firmed after backing off the key 3% mark in the previous session, ahead of an expected Fed decision to deliver an aggressive 50 basis-point interest-rate hike to contain soaring inflation.


* The U.S. central bank's Federal Open Market Committee is set to announce its decision on rates later on Wednesday, and detail plans to reduce the Fed's $8.9 trillion balance sheet.

* While gold is seen as an inflation hedge, higher short-term U.S. interest rates and bond yields tend to increase the opportunity cost of holding bullion, which yields nothing.

* The dollar remained close to 20-year peaks, making gold less attractive for overseas buyers.

* Bullion is also seen as a safe store of value during times of economic and political crises.

* Russian forces pounded targets in eastern Ukraine on Tuesday, even as the European Union prepared to slap oil sanctions on Moscow.

* Spot silver dipped 0.1% to $22.54 per ounce, platinum firmed 0.1% to $962.60, and palladium eased 0.1% to $2,252.51.