Gold edges higher ahead of Fed policy statement

Gold prices firmed on Wednesday, recovering from the previous session's near two-week low, but moves were muted as traders awaited the outcome of the Federal Reserve's latest policy meeting.

The US central bank is widely tipped to unveil a quarter-point interest rate rise at 1800 GMT, lifting the Fed funds target rate above 1 per cent for the first time since the immediate aftermath of Lehman Brothers' collapse in 2008.

Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar.

Markets await fresh clues on policy after scaling back their expectations for further US rate hikes this year over the last few months.

Spot gold was up 0.2 per cent at $1,267.46 an ounce at 0955 GMT, having touched its weakest since June 2 on Tuesday at $1,259.16. US gold futures for August delivery were up $1.50 an ounce at $1,270.10.

Fed Chair Janet Yellen is due to hold a news conference 30 minutes after the main policy statement.

“The real surprise won't be the rate hike, it'll be more in the language (of the statement),” Capital Economics analyst Simona Gambarini said.

“Much of the reaction in gold prices will depend on whether there is any mention of further tightening ahead, any reassessment of current growth conditions or inflation expectations.”

“If the Fed, as we expect, is a bit more hawkish in its commentary, I don't see gold prices trading around current levels for much longer.”

Equity markets climbed, though concerns about stretched valuations and caution ahead of the near-certain rate hike kept a lid on gains.

The dollar held steady against a currency basket. Silver also climbed, up 0.5 per cent at $16.94 an ounce after hitting its lowest in nearly a month the previous day at $16.68.

Platinum , which hit a near one-month low of $918.50 on Tuesday, was up 0.4 per cent at $927 an ounce. Its sister metal palladium , which surged to a 16-year high last week at $914.70, was up 0.4 per cent at $886.10 an ounce.

“The palladium price is expected to see a correction in the short term after the exaggerated increase in the last few weeks,” Commerzbank said in a note.

“Afterwards the palladium price should rise to $850 per troy ounce by year-end due to the expected large supply deficit and the positive price trend in precious metals in general.”