LONDON: Gold hovered at slightly firmer levels on Wednesday as investors kept to the sidelines, confident that the US central bank would raise interest rates but unsure about what guidance it would give for next year.
Bullion was supported by a softer dollar ahead of a US Federal Reserve announcement later on Wednesday that markets overwhelmingly expect will be an interest rate hike of a quarter percentage point.
Markets are unsure, however, about whether the Fed will signal more rate hikes next year.
"Gold is in no-man's land today, waiting for more insight from the Federal Reserve," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.
"In theory the Fed might surprise on the hawkish side, but the dollar has risen to a level that already incorporates another two hikes. So it's pretty messy, the dollar is ruining the Fed's plan."
Spot gold was up 0.3 percent at $1,161.33 an ounce by 1303 GMT and US gold futures added 0.4 percent to $1,163.30.
The Fed is due to release its latest policy and interest rate statement at 1900 GMT with new forecasts assessing whether the economic outlook has changed since the election.
Higher US rates raise the opportunity cost of holding non-yielding bullion and normally weigh on gold, but markets have already priced in a December rise.
The dollar index, which measures the greenback against a basket of currencies, was down 0.2 percent at 100.87, having slipped from this week's high of 101.78 touched early on Monday.
"The market expects that maybe (Fed Chair Janet) Yellen's comments tonight on rate hike projections for the next year will not be too hawkish," said Helen Lau, an analyst at Argonaut Securities in Hong Kong.
"So that is the reason why dollar has weakened a little bit, and that's what is supporting gold prices."
Meanwhile, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, are down over 9 pct since November.
"People who invest in ETFs will have a relatively longer-term view, so the current rotation is rotate out of gold to risky assets, expecting that the US economic situation will improve," Lau said.
Commerzbank said physical gold demand was starting to rebound in India, which has been hit by a severe cash crunch.
"According to industry and trade sources, Indian jewellery manufacturers have recouped roughly half of the business they lost following the government's demonetisation," the bank said in a note.
Silver was up 0.8 percent at $17.04 per ounce after falling nearly 1 percent in the previous session.
Platinum rose 0.8 percent to $939.50 an ounce.
Palladium dipped 0.3 percent to $727 an ounce, having risen about 1 percent on Tuesday.
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