By Ambar Warrick

-- Gold prices were muted in early Asian trade on Tuesday after touching key highs in the prior session as markets locked in some profits ahead of an upcoming Federal Reserve interest rate decision, while caution over a potential banking crisis kept safe haven demand strong.

The yellow metal rallied sharply over the past week as growing fears of a U.S. and European banking collapse spurred heavy flows into traditional safe haven assets, while bets that the Fed will lack the economic headroom to keep raising rates dented the .

This saw gold prices cross the $2,000 an ounce level for the first time in a year on Monday, albeit briefly, as caution also kicked in ahead of what is expected to be a pivotal Fed meeting on Wednesday.

rose slightly to $1,980.14 an ounce, while were flat at $1,983.70 an ounce by 22:13 ET (02:13 GMT). Bullion prices rallied nearly 6% over the past week.

Focus this week is chiefly on the results of a two-day Fed meeting on Wednesday, with the bank widely expected to (bps)- a smaller figure than previous expectations of a 50 bps hike. 

A brewing bank crisis saw markets largely reassess their expectations for whether the central bank will tighten policy further, given that a sharp rise in interest rates applied much pressure on the banking system. A expect the Fed to hold rates on Wednesday. 

Gold and other precious metals stand to benefit from a less hawkish Fed, given that rising interest rates push up the opportunity cost of holding non-yielding assets. 

Uncertainty over the Fed also weighed on the dollar over the past week, further benefiting metal prices, while the Fed rolled out emergency liquidity measures for the banking sector, undermining some of its monetary tightening over the past year.

But given that U.S. inflation is still trending well above the Fed’s target range, the bank may yet raise interest rates further. 

Other precious metals were muted on Tuesday, but were still riding strong gains over the past few sessions. fell 0.1% to $996.55 an ounce, while rose 0.1% to $22.665 an ounce.

Among industrial metals, copper prices traded sideways after rising for the past five sessions. But they were still trading at relatively low levels, after being hit hard by concerns over slowing economic growth.

rose 0.1% to $3.9610 a pound.