Gold held firm on Wednesday, supported by a weaker dollar and trade tensions as the market looked ahead to an expected U.S. rate hike next week when the Federal Reserve meets.
"Investors are sitting on the fence, they only want to be involved when we break out of the range," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. Gold was trapped between the 200-day moving average at around $1,308 and $1,286 on the downside, he added.
The case for hiking U.S. interest rates next week was bolstered on Tuesday when data showed U.S. services sector activity accelerated in May and job openings rose to a record high in April.
Gold, which is a non-interest-paying asset, could see demand take a hit from higher rates. Once the rate decision has been taken, gold is likely to move higher, Hansen said. "There is potential for gold to follow the same pattern it's taken after recent rate hikes: defensive before, only to rally afterwards."
A softer greenback provided support to dollar-denominated gold after the euro rose to a 10-day high when European Central Bank officials said an end to the bank's bond-buying program Potential investors in gold were also waiting to see how trade tensions play out since many believe recent U.S. tariffs are negotiating tactics, analysts said.
"Investor interest is mixed towards gold in the current environment, with geopolitical tensions attracting reduced flows and limiting the downside risk rather than propelling prices higher," Standard Chartered said in a note on Tuesday.
Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.03 percent to 836.13 tonnes on Tuesday, the lowest since mid-March.