Gold ticked slightly higher on Monday as the dollar gave back some of its recent gains, but caution ahead of the Federal Reserve policy meeting later this week curbed its advance.

The Fed is not expected to raise interest rates at this week’s meeting but markets will be looking for the US central bank’s take on the global economy and its monetary policy outlook.

Fed Chair Janet Yellen had said last month the central bank should proceed only cautiously as it looks to raise rates, following its first rate hike in nearly a decade in December. Higher rates could dent the demand for non-interest-paying gold.

Spot gold

Spot gold rose 0.1 per cent to $1,233.60 an ounce by 0325 GMT, after dropping 1 per cent on Friday as the dollar rallied.

“Should the central bank continue to hint at further rate delays, we could see the dollar sell-off resume, in which case most commodity markets, including gold, could push higher,” said INTL FCStone analyst Edward Meir.

“However, gold’s upside will be capped by the fact that funds will be throwing their money at various other markets that are moving up more decisively then gold, while the continued strength in US equities will also act as another drag,” he said.

Gold has gained about 16 per cent this year on speculation that the Fed may not be able to raise rates this year on concerns over the Chinese economy and volatility in global markets.

Fed rate hike

Economists expect the Fed to deliver a rate hike in June, and follow up with another by the end of this year. But interest rate futures show less conviction, underscoring an ongoing wide gap between markets and policymakers on the trajectory of rates.

Analysts warn gold could see more declines after Friday’s slide.

“Gold is in a corrective phase after recent gains. Each time it has rallied to $1,270-$1,282 it has fallen back on profit-taking, especially when the dollar has rallied,” said HSBC analyst James Steel.

Dollar vs yen

The dollar rose to a three-week high against the yen on Friday after a report said the Bank of Japan is considering expanding its negative rate policy to bank loans. But it fell back slightly on Monday, with the dollar index down 0.2 per cent.

Speculators continue to bet on rising prices for gold and silver. Data on Friday showed hedge funds and money managers raised their bullish position in COMEX silver contracts to a record high in the week to April 19, and net long positions in gold to the highest in 3-1/2 years.

Silver rose to a 11-month top last week and was trading below that level on Monday on dollar strength.

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