SINGAPORE: Gold crawled higher on Wednesday ahead of the outcome of a US Federal Reserve policy meeting that investors hope will unveil more bond buying measures, supporting bullion's appeal as a hedge against inflation.
Economists expect the Fed to announce monthly bond purchases of $45 billion to replace its Operation Twist programme set to expire at the end of the year, signalling the central bank will continue to pump money into the economy in the new year in a bid to bring down unemployment.
Central banks' easy monetary policy has helped gold rise more than 9 percent this year in its twelfth straight year of gains, as investors seek safety in hard assets amid fears that stimulus measures will diminish the value of paper money.
"The market will trade in a tight range, as investors cautiously wait for the result of the Fed meeting," said Li Ning, an analyst at Shanghai CIFCO Futures.
"Gold is supported at the $1,700-level, under which bargain hunters are waiting."
Spot gold edged up 0.1 percent to $1,712.31 an ounce by 0714 GMT. US gold gained $1.60 to $1,711.20.
Budget talks in Washington made some progress as the White House and Republicans exchanged new proposals on how to avert $600 billion worth of tax hikes and spending cuts in the new year that threaten to tip the economy back into recession.
The financial markets have been watching the prolonged and complicated negotiations in Washington, with hopes that the two sides will eventually compromise and reach an agreement as the deadline nears.
In Europe, surprisingly strong German business sentiment data offset worries about Italy's political upheaval, supporting the euro.
The dollar was on the backfoot as markets expect more monetary stimulus from the Fed to be announced later in the day. A weaker dollar boosts buying interest in dollar-priced commodities from buyers holding other currencies.
Holdings of gold-backed exchange-traded funds edged up to 76.178 million ounces on Dec. 10, after slipping from a record high of 76.187 million ounces in the previous session.
Center>Copyright Reuters, 2012
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