Gold edges back above $1,200 ahead of Fed statement

London (Dec 17)  Gold edged back above $1,200 an ounce on Wednesday as traders awaited the outcome of the U.S. Federal Reserve's last policy meeting of the year, when it may signal how soon it will raise interest rates.

Investors were also eyeing Russia after the rouble plunged more than 11 percent against the dollar on Tuesday despite a hefty interest rate hike by the country's central bank.

Spot gold was up 0.4 percent at $1,201.40 by 1222 GMT. On Tuesday the metal's trading was volatile, hitting a session high above $1,221 and then a one-week low of $1,188.41 before ending marginally firmer.

Investors will be watching whether the Federal Open Market Committee removes the phrase "considerable time" in the statement it releases at 1900 GMT with regard to the timing of an interest rate increase.

Dropping that phrase would mean the Fed is preparing the market for a rate hike next year as the U.S. economy gathers strength, analysts say, which could weaken the prices of non-interest-bearing assets such as gold.

"The gold market will be closely following what the Fed says. That will dictate the price for the next few days," Natixis analyst Bernard Dahdah said.

"We'll be looking at whether they move into a more data-dependent decision-making process in terms of the speed at which they will take things."

U.S. gold for February delivery rose 0.6 percent to $1,201.30 an ounce.

Russia's financial crisis weighed on stock markets, with European shares down 0.5 percent on Wednesday. The Russian rouble remained volatile despite foreign-currency sales by the Finance Ministry.

Barnabas Gan, analyst at OCBC Bank, said the market was watching whether Russia would sell its gold holdings to finance spending. "If that happens, we would see gold taking another step down, possibly closer to our year-end forecast of $1,150," he said.

Demand for physical gold in Asia was lacklustre overnight as traders awaited fresh direction from the Fed, precious metals house MKS said in a note.

Holdings of the world's largest gold-backed exchange-traded fund, which last week posted their biggest weekly rise since mid-July, saw a second consecutive daily outflow on Tuesday, of 1.8 tonnes.

Other precious metals firmed, with spot silver climbing 1.2 percent to $15.86 an ounce and platinum up 1.1 percent at $1,201.80 an ounce. Palladium was up 0.9 percent at $786.31 an ounce.

Source: Reuters