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The Fed is not expected to raise interest rates at this week's meeting but markets will be looking for the U.S. central bank's take on the global economy and its monetary policy outlook.

"Should the central bank continue to hint at further rate delays, we could see the dollar sell-off resume, in which case most commodity markets including gold could push higher," said INTL FCStone analyst Edward Meir.

"However, gold's upside will be capped by the fact that funds will be throwing their money at various other markets that are moving up more decisively then gold, while the continued strength in U.S. equities will also act as another drag," he said.

Gold held a drop ahead of central bank policy meetings in the U.S. and Japan this week, with investors set to parse any signals from the Federal Reserve for the course of policy over the remainder of the year.

Gold has rallied in 2016 on surging demand for haven assets as concerns over the global economy give pause to the Fed’s policy-tightening path while the Bank of Japan has taken steps to boost growth. Although the Fed isn’t expected to raise rates on Wednesday, investors are waiting for any guidance on the future trajectory of increases. The BOJ will expand stimulus at its meeting on Thursday, according to a slim majority of economists surveyed by Bloomberg.

“Investors are being cautious at the moment as gold has done very well since the beginning of this year, and as the Fed meeting is coming up many decided to take profit and stay on the sidelines, hence prices fizzled out slightly,” Brian Lan, managing director of Singapore-based GoldSilver Central Pte., said by e-mail.

Lan said that, absent news or data that could shift prices, gold is likely to remain between $1,225 and $1,255 an ounce ahead of the Fed and BOJ meets.

(FXStreet) Gold is seen catching a fresh bid-wave as we progress towards the early European trades, with the bulls benefiting from poor sentiment amid lower stocks and oil prices.

The metal has an immediate resistance at 1240/41 (round number/ 1h 200-SMA) and 1244/46 (1h 50 & 100-SMA). Meanwhile, the support stands at 1227 (previous lows) below which doors could open for 1200 (psychological levels).

ICBC Standard Bank Sees Little Reason to Buy Gold at Moment “With expectations of a Fed hike in the next six months already low, the market already heavily long, and physical demand muted we see little reason to jump in and buy gold here,” Tom Kendall, analyst at bank says in note e-mailed Monday.”

Reference: Bloomberg, FXStreet, Reuters