PRECIOUS-Gold touches record high as Fed rate-cut hopes dent dollar

By Brijesh Patel

Sept 16 (Reuters) - Gold scaled a record peak on Tuesday, supported by a weaker dollar ahead of the Federal Reserve's policy meeting this week, where the U.S. central bank is widely expected to cut interest rates.

Spot gold XAU= rose 0.2% to $3,685.02 per ounce, as of 0632 GMT, after hitting a record high of $3,689.27 earlier in the session. U.S. gold futures GCcv1 for December delivery rose 0.1% to $3,722.70.

"The sentiment is very bullish... markets are buying into rate cuts, going into this FOMC decision. The outlook remains strong for gold in the short to medium term," Capital.com analyst Kyle Rodda said.

"There's a lot of dovishness baked into the rate curve, and if the Fed doesn't support that in their guidance and forecasts, it could result in gold prices hitting an air pocket. If the Fed backs market pricing, though that could be the catalyst to send it through $3,700."

U.S. President Donald Trump in a social media post on Monday called for Fed Chair Jerome Powell to enact a "bigger" cut to benchmark rates.

Traders are pricing in a near-certain 25-basis-point rate cut at the end of the two-day meeting on September 17, with a small chance of a 50-bp reduction, per the CME FedWatch tool.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

The dollar .DXY traded near a 2-1/2-month low against the euro and close to a 10-month trough versus the risk-sensitive Aussie. USD/

SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund (ETF), said its holdings rose 0.21% to 976.80 metric tons on Monday from 974.80 tons on Friday. GOL/ETF

Meanwhile, on Monday, a U.S. appeals court refused to allow Trump to fire Fed Governor Lisa Cook - the latest step in a legal battle that threatens the Fed's longstanding independence.

Elsewhere, spot silver XAG= was steady at $42.73 per ounce, platinum XPT= eased 0.2% to $1,398.84 and palladium XPD= fell 0.2% t0 $1,182.25.