Gold Futures Settle Modestly Higher Ahead Of Fed Rate Decision

Gold futures settled higher on Wednesday as the dollar came off recent highs and treasury yields dropped a bit ahead of the Federal Reserve's monetary policy announcement.

Firm stock markets and prospects of a sharp interest rate hike limited gold's uptick.

The Federal Reserve's interest-rate decision will provide for clues on how aggressive the U.S. central bank intends to be in the coming months.

The consensus among Fed watchers is that the FOMC will raise its key Fed Funds rate by 50 bps later in the day. A move of 75 basis points would be a surprise, given the deteriorating outlook for growth around the world.

The dollar index dropped to a low of 104.71 in the European session, but recovered most of the lost ground subsequently and was hovering around 105.40 a little while ago, trailing the previous close by 0.1%.

Gold futures for August ended higher by $6.10 or about 0.3% at $1,819.60 an ounce.

Silver futures for July ended up by $0.466 at $21.420 an ounce, while Copper futures for July settled at $4.1635 per pound, up $0.0070 from the previous close.

The European Central Bank has proposed to create a new tool to tackle the risk of fragmentation across the common currency bloc in order to alleviate fears of a debt crisis. The ECB announced this move after an unscheduled monetary policy meeting following the surge in bond yields in the region.

The Bank of England, which is scheduled to announce its policy on Thursday, is widely expected to announce yet another rate hike - the fifth in succession - to combat soaring inflation.

On the U.S. economic front, a report from the Commerce Department showed retail sales fell by 0.3% in May after climbing by a downwardly revised 0.7% in April. Economists had expected retail sales to edge up by 0.2% compared to the 0.9% increase originally reported for the previous month.

A separate report released by the Labor Department showed U.S. import prices climbed by 0.6% in May after rising by a revised 0.4% in April. Economists had expected import prices to jump by 1.1% compared to the unchanged reading originally reported for the previous month.

Meanwhile, the report showed export prices surged by 2.8% in May following a 0.8% increase in April. Export prices were expected to shoot up by 1.3%.

The Federal Reserve Bank of New York also released a report showing regional manufacturing activity was little changed in the month of June.

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