Gold holds ground despite Fed's rate rise signals

(Recasts, adds analyst comment, 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 expectations of monetary policy tightening in the United States capping gains.

With U.S. markets closed for a public holiday, spot gold rose 0.2% to $1,820.50 per ounce by 1412 GMT, while U.S. gold futures had inched 0.2% higher to $1,820.50.

"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," Xiao Fu, head of commodities markets strategy at Bank of China International, said.

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 rate hike expectations.

The focus is now on the U.S. Federal Reserve's Jan. 25-26 meeting after policymakers signalled 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 net long COMEX gold position in the week to Jan. 11, data on Friday showed.

Elsewhere, spot silver was up 0.2% to $23.00 an ounce, platinum rose 0.3% to $973.50, and palladium was up 0.6% to $1,889.68. (Reporting by Seher Dareen and Swati Verma in Bengaluru; Editing by Aditya Soni and Alexander Smith)