LONDON: Gold inched up for a third straight session on Wednesday as the dollar eased and speculation mounted that the Federal Reserve would vow to maintain interest rates at low levels when the U.S. central bank concludes its policy meeting later in the day.
Investor expectations for the U.S. Federal Reserve's policy statement due at 1800 GMT were shifted by a report in the Wall Street Journal that indicated the Fed could be less hawkish than markets have been anticipating.
Spot gold was up 0.1 percent at $1,236.34 an ounce by 0959 GMT. The metal was tentatively heading for a third day of gains but prices were still within reach of an eight-month low of $1,225.30 hit on Monday.
U.S. gold futures gained $0.40 an ounce to reach $1,237.20.
The dollar was flat against a basket of leading currencies, slightly recovering after Tuesday's fall.
"No matter what happens at the Fed meeting today - policymakers are probably going to talk down speculation of an early interest rate hike and maintain the same language - any upside in gold is limited," VTB Capital analyst Andrey Kryuchenkov said.
"The dollar is going to remain stronger against the euro and that is what really impacts the metal."
The Fed had said earlier that it would keep rates near zero for a "considerable time" after ending its bond-buying program, with the markets believing that no change would be made until mid-2015. But talk of an earlier rate hike has increased after a string of strong economic data.
Any change in the 'considerable time' guidance hinting towards an earlier rate hike "may have important ramifications for gold and would likely press prices lower", HSBC said in a note.
Bearish sentiment was reflected in the flows of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. The fund's holdings fell 4.18 tonnes to 784.22 tonnes on Tuesday.
Bullion investors were also eyeing Thursday's referendum on Scottish independence to gauge the impact on the dollar.
"A yes vote is likely to be bullish for gold and a no vote slightly bearish," HSBC said, adding that investor uncertainty from a yes vote would boost gold demand.
Buying picked up in the physical markets as gold prices steadied above an eight-month high.
In top buyer China, daily trading volumes of 99.99 percent purity gold on the Shanghai Gold Exchange hit their highest since late June on Tuesday.
Silver was down 0.4 percent at $18.60 an ounce, having touched its lowest since June 2013 on Friday.
Platinum fell 0.1 percent to $1,359.40 an ounce, while palladium rose 0.1 percent to $840.20.
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