Gold prices rose more than 1% on Wednesday helped by a tepid U.S. dollar, as investors braced for a potentially aggressive interest rate hike from the Federal Reserve.

Spot gold rose 1.2% to $1,829.99 per ounce by 1225 GMT while U.S. gold futures gained 1.1% to $1,832.70.

The dollar index was down 0.2% on the day, having reached a near two-decade high in the previous session, while benchmark U.S. 10-year Treasury yields also eased from a multi-year peak.

Gold is caught between "those focusing on yields and its potential negative impact on gold and against that we really have the increased risk by of a stagflation," said Saxo Bank analyst Ole Hansen.

Hotter-than-expected U.S. inflation data released last week has prompted investors to price in an interest rate increase of 75 basis points (bps) rather than 50 bps by the Fed to tame rising price pressures. While gold is often viewed as a safe asset in times of economic uncertainties, rising interest rates and bond yields increase the opportunity cost of holding non-yielding bullion and boost the dollar.

Equity market meltdown could also lead to some diversification into gold, French lender Societe Generale said in a note. Investors now await the Federal Open Market Committee's policy decision on interest rate, due at 1800 GMT.

If the Fed were to raise interest rates by only 50 basis points today, some of the movements seen over the last few days could be reversed, that is yields could fall, the dollar could weaken and gold could gain, analysts at Commerzbank said in a note.

Spot silver rose 1.9% to $21.48 per ounce while platinum was up 2.1% to $939.88. Palladium was 1.2% higher at $1,836.85 per ounce.

(Reporting by Eileen Soreng and Arundhati Sarkar in Bengaluru. Editing by Jane Merriman, Kirsten Donovan)