Gold surged to a six-year high in 2019 Image Credit: Reuters

Gold prices traded in a tight range on Tuesday, as investors maintained a cautious stance ahead of this week's policy meeting by the Federal Reserve where the US central bank is expected to hike rates aggressively in an effort to curb inflation.

Spot gold held its ground at $1,674.34 per ounce, as of 0205 GMT. US gold futures rose 0.3% at $1,683.10.

The U.S. Fed, at the conclusion of its two-day policy meeting on Wednesday, is expected to raise interest rates by 75 basis points (bps), with market participants even seeing a 19% chance for a 100 bps increase.

"Higher Treasury yields and a stronger dollar on the back of expectations for more aggressive Fed's policies have been headwinds for gold prices," said Yeap Jun Rong, a market strategist at IG.

"More aggressive projections from policymakers compared to current market expectations could reveal a higher-for-longer stance for rates, which may not be well-received by gold prices."

Rising interest rates dent gold's appeal as it increases the opportunity cost of holding non-yielding bullion.

Even though the dollar index dipped 0.1%, it wasn't far from a 20-year high. A firmer greenback makes bullion more expensive for other currency holders.

The benchmark 10-year Treasury yield held close to its highest level in over a decade scaled on Monday.

Mirroring investor sentiment, holdings in the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell to 30,799,131 ounces on Monday, the lowest since March 2020.

Inflation concerns have also prompted other central banks across the globe to tighten monetary policy.

Elsewhere, spot silver lost 0.9% to $19.43 per ounce.

Platinum was flat at $919.40 and palladium was down 1.4% at $2,193.53.