LONDON, Dec 10: Gold bounced on bargain hunting on Monday after a drop of around 1 per cent last week, but the metal was likely to trade in a tight range ahead of a decision by the US Federal Reserve on interest rates.

Spot gold rose to $800.00/800.80 from $794.90/795.70 late in New York on Friday, when it fell more than $8 on the back of weaker crude oil prices.

Gold has been stuck in a tight range in recent days ahead of the US Federal Reserve’s rate decision on Tuesday, and some investors cautiously noted that data showing steady US job growth cooled expectations of a large cut in key interest rates.

Investors returned as buyers to the gold market but not in any great volume.

Positioning ahead of tomorrow’s Fed meeting could see gold trade up to the $805-$810 area, but there is a risk of another sharp sell-off after the expected rate cut, said Tom Kendall, metals strategist at Mitsubishi Corporation.

UBS news should help keep sentiment towards gold friendly, but is unlikely to have any major impact, he said after Swiss bank UBS unveiled $10 billion in shock subprime write downs on Monday.

UBS said it had obtained an emergency capital injection from the Singapore government and an unnamed Middle East investor.

The $10 billion charge was one of the largest write downs by any global bank since the subprime crisis broke and was the latest sign of the devastation wrought upon some of the world’s largest financial institutions from the credit crisis.

Gold is traditionally seen as a safe-haven investment as its appeal rises in difficult times. The metal also moves in the opposite direction to the dollar and is generally considered as a hedge against oil-led inflation.

The Fed is seen cutting its target for overnight rates by at least a quarter-point to 4.25 percent this week, but interest rate futures have cut the implied chance of a half-point cut to about 25 per cent from near 60 per cent last week.

Friday’s November payrolls data showed a 94,000 increase in employment and the jobless rate holding at 4.7 per cent, suggesting the economy was not falling off a cliff.—Reuters