LONDON--Spot gold bounced to a three-day high Wednesday after data showing the euro zone's recovery is strengthening triggered a rally in the euro.
The move pushed gold toward the upper part of its recent range, though a break above resistance at $1,145 a troy ounce is unlikely unless the Federal Open Market Committee meeting produces some surprises, analysts and traders said.
Spot gold was trading at $1,134.35 an ounce, up 0.9%. The euro was at $1.4563, up from $1.4530 at midnight London time.
The euro-zone purchasing-manager composite index in December jumped to a 26-month high of 54.2, beating an expected reading of 53.9. The positive data shored up support for the euro, which has been losing ground to the dollar after recent economic data showed the U.S. was recovering faster than the euro zone.
The U.S. producer-price index for finished goods for November on Tuesday showed a better-than-expected 1.8% increase, raising expectations among some that the Fed may hint at a tightening in monetary policy in the Federal Open Market Committee statement Wednesday.
Most expect the Fed to be cautious and reiterate the need to maintain low interest rates, although any hawkish movement in its stance could strengthen the dollar.
"The U.S. central bank will be very careful in its wording, but the market will be looking out for any indications of an earlier liquidity withdrawal or interest-rate rises given recent bullish U.S. data," VTB Capital analyst Andrey Kryuchenkov said in a report Wednesday.
Should the Fed signal a need to tighten and the dollar strengthens, gold may benefit because it provides a hedge against inflation, but a firmer dollar would also limit gold's upside, Mr. Kryuchenkov said.
Gold was also drawing support from a strong recovery in physical demand, said Jeremy East, global head of commodities at Standard Chartered in London.
Now that gold prices have bottomed since correcting 10% from their record high on Dec. 3 at $1,226.30 per ounce, consumers in India have returned to the market, Mr. East said. "We've actually shipped more to India in the last week than the last six months," he added.
In other precious metals, spot silver was up 0.8% at $17.515 an ounce. Spot platinum rose 0.07% to $1,447 an ounce and spot palladium increased by 1% to $366 per ounce.
