By Renita D. Young and Pratima Desai
NEW YORK/LONDON (Reuters) - Gold prices hovered near four-month lows on Wednesday as the dollar advanced, and were expected to remain under pressure from a significantly stronger U.S. currency and weak investment demand.
Investors awaited the U.S. Federal Reserve's remarks from its two-day meeting at 2 p.m. EDT (1800 GMT) for clues about the outlook for interest rate hikes.
Spot gold rose 0.2 percent at $1,305.89 per ounce by 1:35 p.m. EDT (1735 GMT), while U.S. gold futures for June delivery settled down $1.20, or 0.1 percent, at $1,305.60.
The greenback held near 3-1/2 month highs hit on Tuesday. Its gains makes dollar-priced gold more expensive for holders of other currencies, which could potentially subdue demand.
"The dollar's rebound has put pressure on gold and that is likely to persist," said Julius Baer analyst Carsten Menke.
More From This Section
"The other problem is a lack of investment demand, which is surprising given the headwinds to global trade from protectionism" amid global trade tensions. "You can see it in the physically backed gold products, a primary indicator of safe-haven demand."
Holdings of the largest gold-backed exchange-traded-fund SPDR Gold Trust are down more than 10 percent since the middle of 2016.
"Rising inflation expectations, an overall bullish commodity trend (late-cycle preference for commodities), geopolitical and financial risks are being offset by a rising dollar and rising real-rates," Saxo Bank analysts said in a note.
Investors often use gold as a hedge against inflation, but higher interest rates dent the appeal of gold, which earns nothing and costs money to store and insure.
For now, relatively tame commodities prices are "keeping longer term inflation at bay," and pressuring gold, said Rob Lutts, chief investment officer of Cabot Wealth Management.
However, some geopolitical risk concerning U.S. sanctions on Russia kept gold prices supported, said TD Securities' Daniel Ghali. "There's still a little geopolitical risk in the background, but overall, things have eased over the last couple of weeks."
The Fed is likely to keep interest rates steady, but encourage expectations of higher rates in June.
Technical analysts saw support at around $1,305 where the 200-day moving average sits and resistance at $1,321 near the 100-day moving average.
Elsewhere, spot silver rose 1.5 percent at $16.35 per ounce and palladium climbed 1.5 percent at $962.30.
Platinum was up 0.22 percent at $891.99 an ounce.
(Editing by Matthew Mpoke Bigg and David Gregorio)