Gold Steady Ahead of Fed

Updated from 11:31 a.m. EDT

Gold prices hovered around the unchanged mark Monday as traders struggled to find direction ahead of the Federal Reserve's meeting and comments on the economy later this week.

April-dated bullion contracts added 40 cents to close at $654.30 an ounce on the Comex division of the New York Mercantile Exchange. The bullion exchange-traded funds that hold the metal also edged higher.

iShares Comex Gold Trust (IAU Quote) and streetTracks Gold Shares(GLD Quote) were both up about 0.2%.

"Investors will be closely watching [Wednesday] to see if the Fed changes its risk assessment on inflation vs. the economy," notes David Rosenberg, an economist at Merrill Lynch in New York.

The Fed will start the first day of a two-day meeting on Tuesday. No change in the fed funds target rate is expected, but if market watchers interpret the central bank's words as more dovish toward the risks of inflation, then the dollar could weaken in anticipation of cuts in short-term interest rates.

That would in turn likely be bullish for gold, which tends to appreciate over time as the U.S. currency falls in value.

One dollar was recently buying 117.56 yen, up from 116.80 yen late Friday. Euros were being traded at $1.3298, down from $1.3312 previously.

Elsewhere, some see too much froth remaining in the futures market to allow a sustained rally in bullion.