Spot gold
"The market now appears to wait for the outcome of the two-day FOMC meeting starting today. Crude oil remains the dominant fundamental driver for the time being," Dresdner Kleinwort said, referring to the Federal Open Market Committee
Oil prices gained more than one percent, raising gold's allure as a hedge against oil-led inflation.
Investors await the release of key U.S. economic data, including fourth-quarter GDP figures and the Fed's rate decision on Wednesday, the Personal Consumption Expenditure inflation index on Thursday and January employment data on Friday.
"A low interest rate environment is very constructive for the market. So if the Fed is about to embark on rate cuts this year, that should be supportive for gold going forward," said Michael Lewis, head of commodities research at Deutsche Bank.
"Gold held relatively well in the face of the decline in the euro/dollar. There are some short-term risks to the downside, but by the end of the year, we are looking for gold to be trading higher," he added.
The dollar steadied before the meeting, the outcome of which investors will study for clues on whether the bank has become more optimistic on the economy after a raft of strong data.
Gold often moves in the opposite direction of the dollar.
GOLD'S OUTLOOK
Dealers remained confident about gold's long-term prospects.
"Despite a fairly neutral market balance, prospects for gold are buoyed by the combination of forecasts for dollar weakness and oil price strength," Barclays Capital said in a report.
It said fabrication gold demand had been stabilising after last year's sharp fall because of volatile and high prices, while bullion supply was unlikely to see major changes.
China, a major gold consumer, managed to maintain bullion consumption at around $240 tonnes last year as growing wealth offset higher prices, Albert Cheng, Far East managing director for the World Gold Council, said.
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