* Prices trapped in narrow range
* Traders await cues from Federal Reserve on U.S. rates
* Fed's two-day policy meeting begins on Wednesday
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Sept 16 (Reuters) - Gold edged higher on Wednesday
but struggled to break away from the previous week's one-month
low as traders awaited direction from this week's U.S. Federal
Reserve decision on the timing of an interest rate hike.
The Fed begins a two-day policy meeting on Wednesday at
which it will decide whether or not to raise interest rates for
the first time in nearly a decade.
Spot gold was up 0.2 percent at $1,107.46 an ounce at
0930 GMT, while U.S. gold futures for December delivery
were up $4.30 an ounce at $1,106.90.
On Friday gold hit its lowest since mid-August at $1,098.35,
but it has been trapped in a range of less than $8 this week as
traders await direction from the Fed.
Saxo Bank's head of commodity research, Ole Hansen, said
while there have been signs of some supportive physical demand,
the market remains focused on the potential negative impact of a
rate hike.
"I see three options: no change, rate hike with a hawkish
statement or rate hike with a dovish statement," he said. "The
first two will be gold negative while the last (which is my
preferred option) could trigger a recovery as it removes the
uncertainty and should keep the dollar from rising to fast."
A hike may pressure gold as low rates cut the opportunity
cost of holding non-yielding bullion, while restraining the
dollar, in which it is priced.
Prices are down 6 percent this year on expectations that a
rise may come as early as this month.
Speculation that the U.S. central bank will hike rates at
this week's meeting have eased recently due to concerns over
slowing economic growth in China and volatility in financial
markets, but bullion traders still remained cautious.
"The physical gold markets are quiet. Little near-term gold
demand is coming out of India but China's demand is moderately
good," HSBC analysts said in a note.
Prices in India were at a discount of about $5 an ounce to
the global benchmark due to sluggish demand, dealers said.
In China, however, prices were at a premium of about $5 an
ounce on the Shanghai Gold Exchange, indicating good buying
interest.
In other precious metals, silver XAG= was up 0.6 percent
at $14.48 an ounce, platinum XPT= was up 0.2 percent at
$958.74 an ounce and palladium XPD= was down 1.1 percent at
$593 per ounce.