Gold firms as dollar softens, focus on Fed verdict

* U.S. TIPS yield drops to record low

* Investors eye Federal Reserve meeting

By Nakul Iyer

July 27 (Reuters) - Gold firmed near the key $1,800 level on Tuesday, as the dollar softened and U.S. real yields plunged, though gains were limited by investor caution ahead of a Federal Reserve meeting that could provide details on stimulus tapering.

Spot gold XAU= rose 0.2% to $1,800.46 per ounce by 02:39 p.m. EDT (1839 GMT). U.S. gold futures GCv1 settled little changed at $1,799.8.

The dollar index .DXY slipped 0.3%, lowering gold's cost for holders of other currencies.

Also, the yield on 10-year Treasury inflation-protected securities (TIPS) US10YTIP=RR hit a record low, translating into reduced opportunity cost of holding gold.

The precious metal has been confined to a tight trading range in recent weeks after briefly crossing $1,830, failing to capitalise on subdued U.S benchmark Treasury yields.

"Gold has to be looked at from a cross asset perspective and not just from bonds, and with strong returns in equity markets that impede capital flows into gold," said Bart Melek, head of commodity strategies at TD Securities.

"To break out higher, there has to be some negativity and that is right now only being manifested in bond yields," Melek said, while adding that weaker economic readings ahead would likely push gold prices higher again.

Investors are keeping a watch on how the Fed balances accelerating inflation with the increased economic threat of the Delta coronavirus variant, in its two-day policy meeting beginning on Tuesday.

Lukman Otunuga, senior analyst at FXTM, also said in a note that gold could remain range-bound until the Fed meeting.

"A hawkish central bank could deliver a heavy blow to zero-yielding gold. However, a meeting filled with doves may boost the precious metal's allure, possibly sending prices higher."

Elsewhere, silver XAG= slipped 1.8% to $24.71 per ounce, platinum XPT= shed 1.1% to $1,052.96 and palladium XPD= fell 1.8% to $2,609.14.
Reporting by Nakul Iyer in Bengaluru; Editing by Chris Reese and Steve Orlofsky

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