Gold holds ground despite Fed's rate rise signals

(Updates prices)

* Traders await U.S. Federal Reserve policy meeting

* Specs cut net long positions in gold -CFTC

* U.S. markets closed for Martin Luther King Day

Jan 17 (Reuters) - Gold prices held their ground on Monday, with gains capped by expectations of monetary policy tightening in the United States.

Spot gold rose 0.1% to $1,819.41 an ounce by 1526 GMT while U.S. gold futures also edged up by 0.1% to $1,818.80. U.S. markets were closed for a public holiday.

"A tightening money policy could have negative impacts on gold, but despite that gold has been holding up very well. I think it's mainly because the overall Fed balance sheet is still at elevated levels," said Xiao Fu, head of commodities markets strategy at Bank of China International.

While considered an inflationary hedge, gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion.

U.S. 10-year Treasury yields hit two-year highs last week on expectations for higher interest rates.

The focus is now on the U.S. Federal Reserve's Jan. 25-26 meeting after policymakers signaled that they would start raising interest rates in March to tame inflation.

"Market participants are likely to refrain from buying gold ahead of the U.S. Fed's first rate hike," Commerzbank analysts wrote in a note.

"They may be hoping that the Fed's meeting next week will give them further and/or clearer signals that the Fed will be commencing its rate hike cycle in March."

Reflecting wider sentiment, speculators cut their net long COMEX gold position in the week to Jan. 11, data showed on Friday.

Elsewhere, spot silver was up 0.1% at $22.97 an ounce, platinum rose 0.4% to $974.32 and palladium gained 0.5% to $1,887.19. (Reporting by Seher Dareen and Swati Verma in Bengaluru Additional reporting by Kavya Guduru Editing by Alexander Smith and David Goodman )