* Gold neutral in $1,313-$1,319 range - technicals
* Biggest gold ETF holdings drop 0.4 pct on Tuesday
* Fed statement due at 0200 pm ET later in the day (Recasts, adds comment and updates prices)
By Swati Verma
Sept 21 (Reuters) - Gold rose on Wednesday reversing earlier losses, as the dollar pared gains ahead of the U.S. Federal Reserve's policy outcome due later in the day, which is mostly expected to keep interest rates unchanged.
Spot gold XAU= rose 0.5 percent at $1,321 an ounce by 0737 GMT. U.S. gold futures GCcv1 climbed 0.5 percent at $1,325 an ounce.
Both hawkish and dovish comments from Fed officials recently stoked volatility in the financial markets, although consensus is now centred on a U.S. rate hike by year-end, instead of September.
"There is no realistic chance of a rate hike priced into the market at the moment, so if the Fed hikes interest rates this evening we would definitely see a sell-off in commodities and the emerging markets, including gold," said Jeffrey Halley, senior market analyst, OANDA.
"If the Fed stays pat, we are going to see a big rally in commodities. We will definitely see gold and silver moving higher as well."
Fed Chair Janet Yellen is scheduled to conclude the U.S. central bank's meeting with a press conference at 0200 pm ET (1800 GMT) on Wednesday.
The dollar index .DXY , which measures the greenback against six major currencies, pared gains and was nearly flat at 96.135 after rising as much as 0.3 percent. USD/
The Bank of Japan on Wednesday decided to adopt a target for long-term interest rates in an overhaul of its massive stimulus programme. gold remains neutral in a range of $1,313-$1,319 per ounce, and only an escape from this zone could give it a direction, according to Reuters technical analyst Wang Tao. prices have been consolidating for the past few days. As long as prices remain within $1,300 levels, gold will most likely rally," said Hareesh V, research head at Geofin Comtrade Ltd.
However, "if the Fed raises interest rates, it can drop to $1,245 levels," he cautioned.
Holdings of the SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, slid 0.41 percent to 938.75 tonnes on Tuesday. GOL/ETF
Spot silver XAG= edged up nearly 1 percent to $19.45 an ounce.
"There is less liquidity in silver than gold and probably that is driving prices. Also, investors are looking at the gold silver ratio, which looks like it could be ready for a breakout on the downside and will support silver," OANDA analyst Halley said.
Platinum XPT= climbed as much as 1.37 percent to $1,040, and palladium XPD= gained nearly 1 percent to $687.10.