Gold steadied near its weakest level in almost five months on Wednesday amid expectations the Federal Reserve would raise interest rates again at the conclusion of its last policy meeting this year. The Fed has increased rates twice in 2017 and is still expected to push through three more hikes next year.

Spot gold was down 0.1 per cent at $1,242.18 an ounce at 0755 GMT. That was not far above Tuesday's trough of $1,235.92, which was gold's lowest level since July 20. US gold futures were up 0.2 per cent at $1,243.90 an ounce.

US Senate race

US stock futures, Treasury yields and the dollar fell as Democrat Doug Jones beat Republican Roy Moore in a bitter US Senate race in Alabama, dealing a political blow to Trump in a race marked by accusations of sexual misconduct against Moore.

The win by Jones could be bullish for gold and bearish for the dollar, a Hong Kong-based trader said, adding that the recent dollar strength could lead to some profit-taking on the greenback, in turn helping gold. Strong US producer price data had helped lift the dollar to a four-week high on Tuesday, suggesting improving inflation ahead of the outcome of the Fed meeting on Wednesday.

“It's just consolidating here at the moment until the Federal Open Market Committee statement is out. We're expecting a rate hike,” the trader said, on gold's behavior in Asian trading.

Fed policy statement

Investors will also be focused on the US central bank's statement for clues on further rate increases in 2018. Higher US rates tend to boost the dollar, making greenback-denominated gold more expensive for holders of other currencies.

“If the Fed comes out of the gate with more hawkish views on the economy and see inflation improving, it could impact the dollar index. Any further strength in the dollar index would push the gold price lower,” said Naeem Aslam, London-based chief market analyst at Think Markets.

Reuters technicals analyst Wang Tao said spot gold may bounce towards $1,250 before falling again, as it has stabilised around the support level of $1,239. In other precious metals, silver fell 0.3 per cent at $15.67 an ounce, trading close to a five-month low of $15.61 hit overnight.

Platinum was unchanged at $876.30 an ounce, after touching its lowest since February 2016 at $868.80 on Tuesday. Palladium was little changed at $1,012.

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