Investing.com - Gold prices edged lower in European trade on Wednesday, as investors looked ahead to the outcome of the Federal Reserve’s July policy meeting later in the day for fresh guidance on the future path of U.S. interest rates.
While the Fed is not expected to take action on interest rates, market players will scrutinize its policy statement for fresh hints on the timing of interest rate hikes over the next several months.
A recent string of better than expected U.S. data reignited speculation that the Fed will raise interest rates before the end of the year. Fed funds futures are currently pricing in a 20% chance of a rate hike by September. December odds were at 52%, compared with less than 10% at the start of this month.
Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion.
Besides the release of the Fed statement at 18:00GMT, or 2:00PM ET, there are durable goods orders at 12:30GMT, or 8:30AM ET, and pending home sales at 14:00GMT, or 10:00AM ET.
Gold for December delivery on the Comex division of the New York Mercantile Exchange dipped $2.40, or 0.18%, to trade at $1,325.90 a troy ounce by 06:55GMT, or 2:55AM ET. A day earlier, gold inched up $1.10, or 0.08%.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.30 early on Wednesday, not far from a more than four-month high of 97.59 hit on Monday, boosted by the diverging monetary policy outlook between the Fed and other global central banks.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
The yellow metal remained supported amid speculation central banks in Europe and Asia will step up monetary stimulus in the next few months to counteract the negative economic shock from the Brexit vote.
Gold is up almost 25% for the year to date, boosted by concerns over global growth and expectations of monetary stimulus. Expectations of monetary stimulus tend to benefit gold, as the metal is seen as a safe store of value and inflation hedge.
Prices surged to a more than two-year high of $1,377.50 earlier in July, as concerns surrounding global growth in wake of Britain’s vote to exit the European Union sent investors flooding into safe haven assets.