Gold prices fluctuated between gains and losses Tuesday morning as traders awaited the start of the Federal Reserve's July meeting.
Gold for August delivery was recently near flat at $ 1319.10 a troy ounce on the Comex division of the New York Mercantile Exchange. Gold traded as low as $ 1,318.50 and as high as $ 1,322.50 on Tuesday morning.
A weaker U.S. dollar helped support gold prices, as dollar-denominated commodities, such as gold, become cheaper for investors who hold other currencies. The WSJ Dollar Index, which measures the dollar against a basket of currencies, was recently down 0.3% at 87.75.
Markets are focused on the Fed's two-day policy meeting set to start on Tuesday, where investors will look for clues on whether the central bank will raise interest rates this year. Minutes from past meetings have shown that officials are divided on whether the U.S. economy is strong enough to weather a rate increase.
Traders do not expect the Fed to raise interest rates at the July meeting, but strong economic data has raised questions on whether officials will consider raising rates in September. Despite economic uncertainty in recent months, the probability of a rate increase by year's end has risen to 48%, Commerzbank said in a note to clients, citing Fed Fund Futures.
Higher interest rates tend to weigh on gold, since the metal pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise. However, wariness around the weak economic outlook in Europe will help support the metal, as investors continue to look for safe investments, said Nitesh Shah, an analyst at ETF Securities in London
"It's fair to say the U.S. data is strong but a number of investors are still putting money into safe havens as an insurance against worst-case scenarios," said Mr. Shah.
Gold soared on safe-haven demand following the British vote to leave the EU, but prices have since waned as risk appetite returned to the market. Gold prices recently fell to a three week low. However, some analysts see the pullback in gold as an opportunity for investors to jump in.
"Investors are getting back into [gold]. The market's correction of the past couple weeks probably was overdone," Mr. Shah said. "All the reasons for gold to have increased a few weeks ago are still there."
Write to Stephanie Yang at stephanie.yang@wsj.com and to Katie Riordan at katherine.riordan@dowjones.com
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