LONDON, Aug 13: Gold was trapped in a narrow range in the European session on Tuesday ahead of an interest rate decision by the US Federal Reserve which would shape short-term price direction for the precious metal.

Spot gold was quoted at $314.10/314.60 a troy ounce up marginally from $314.00/314.50 an ounce at the New York close on Friday.

Gold is 15 per cent higher than this time last year but only managed to trade in a tight range of $313.90/315.00 as European traders waited for the decision from the Federal Reserve.

Either Fed action could have a slight positive effect for gold, as lower rates would make forward (gold) selling even less attractive and leaving rates unchanged could further weaken the dollar and stock market, said Andy Maag, metals analyst at UBS Warburg.

Weaker stock markets and dollar losses against major currencies tend to support gold as investors seek out calmer waters in times of uncertainty.

Lower interest rates also discourage gold producers from selling their bullion in forward markets, effectively capping supply.

Economists are expecting the Fed to leave the benchmark rate unchanged at its current 40-year low of 1.75 per cent, but a few are holding out for the monetary policy committee to snip off further basis points to pump life into a limp economy.

A weaker US dollar and financial market jitters continue to boost alternative investment buying in gold, said Deutsche Bank in a market note.

Silver was at $4.59/61 an ounce, up from $4.58/4.60 an ounce at the New York close on Monday.

Spot platinum was quoted at $550.50/558.50 an ounce, down from the previous New York close of $551.00/559.00 and spot palladium was quoted at $318.00/324.00 an ounce, down from the New York close on Monday of $319.50/331.50.—Reuters