Gold rises on easing oil as Fed rate verdict looms

Gold prices rose over 1% on Wednesday as the dollar weakened and oil prices slipped, while investors awaited the U.S. Federal Reserve's upcoming decision on interest rates for further direction.

Spot gold XAU= was up 1.3% at $4,347.91 per ounce as of 1208 GMT after touching a more than one-month low on Monday. U.S. gold futures GCcv1 for December delivery rose 1.3% to $4,388.80.

Oil prices eased after a two-day rally, while a subdued U.S. dollar made dollar-denominated metals cheaper for buyers holding other currencies. US/ USD/ O/R

"Gold firms up today on easing dollar strength, a cooldown in oil prices and a pullback in U.S. bond yields," said Nikos Tzabouras, a senior market analyst at Jefferies-owned Tradu.com.

"Technically, the near-term bias remains to the downside, but bullion's trajectory will be determined by the Fed's decision."

The U.S. central bank will announce its rate decision at 1800 GMT, which will be followed by a press conference from Fed Chair Kevin Warsh.

Traders are pricing in a 93% chance of at least a 25-basis-point U.S. rate hike, according to the CME FedWatch Tool.

Gold is traditionally seen as an inflation hedge, but higher rates increase the opportunity cost of holding non-yielding bullion.

"As long as supply disruptions keep crude and consumer prices elevated, pressure for monetary tightening will persist, weighing on bullion," said Tzabouras.

"On the other hand, ballooning deficits are eroding confidence in the greenback and fuelling the debasement trade, driving investors toward hard assets like gold."

Other central banks will also announce interest rate decisions this week, with the Bank of Japan set to raise interest rates to a 31-year high on Friday and signal readiness to keep pushing up borrowing costs.