BENGALURU - Gold eased slightly on Wednesday but stayed near a more than five-month peak scaled earlier in the session on increasing speculation that the U.S. Federal Reserve could signal a slower pace of interest rate hikes next year.
After gaining for the last two sessions, gold was down 0.1 percent at $1,248.11 per ounce a 1101 GMT. The metal had risen to its highest since July 11 at $1,251.39 earlier.
U.S. gold futures eased 0.1 percent to $1,251.90 per ounce.
"The general backdrop for gold is still positive," said Commerzbank analyst Carsten Fritsch, adding the price dip could be attributed to some profit-taking after the initial jump.
Markets are preparing for the Federal Reserve rate decision at 1900 GMT after its final two-day policy meeting of the year.
"It is the most uncertain Fed meeting in a while. The Fed fund futures are pricing in a likelihood of roughly 2/3 in favour of a rate hike in this meeting, which is way below from an almost done deal just a few days back," Fritsch said.
The U.S. central bank may signal an earlier end to its monetary tightening in the face of financial market volatility and rising recession fears.
Expectations of lower interest rates tend to support gold, as they reduce the opportunity cost of holding the non-yielding bullion and put pressure on the greenback.
"It is not a mystery that all eyes are now on the Fed's meeting. Gold is supported by expectations for a dovish foreguidance for 2019-2020," said ActivTrades chief analyst Carlo Alberto De Casa.
The dollar slipped 0.3 percent after touching a one-week low versus a basket of currencies the previous session. [USD/]
"From a technical point of view, the trend remains bullish," De Casa said. "We're still on track for seeing bullion continuing its recovery to $1,260."
Gold has risen nearly 8 percent from 19-month lows hit in mid-August and is on track for its best quarter since March 2017.
Rising investor interest was reflected in inflows to the largest gold-backed, exchange-traded fund, New York's SPDR Gold Trust. Holdings in the ETF jumped 1.1 percent to 771.79 tonnes, the highest since Aug. 20, on Tuesday. [GOL/ETF]
Meanwhile, silver was down 0.1 percent at $14.63, while platinum gained 0.6 percent to $791.90.
Spot palladium was up 0.1 percent at $1,244.49 per ounce, having hit a record high of $1,269.50 earlier this week.