Updated from 12:37 p.m. EST

Gold edged higher Tuesday as dealers took positions ahead of Wednesday's Federal Reserve interest rate policy announcement.

April-dated bullion contracts added $1.10, to close at $650.10 an ounce on the Comex division of the New York Mercantile Exchange. The PowerShares DB Gold ( DGL) fund, which tracks the futures price, was gaining 0.5% recently.

The ETFs that hold the metal -- iShares Comex Gold Trust ( IAU) and streetTracks Gold Shares ( GLD) -- also were moving ahead, up 0.4% and 0.3% respectively.

In addition to the added speculative positions, at least part of the story involved transactions by currency dealers.

"I've seen evidence that some 'carry trades' in Asia are being unwound, and that's having a spillover into the gold market," says Neal Ryan, director of economic research at New Orleans-based coin dealer Blanchard.

The "carry trade" involves selling short a low-yielding currency, such as the yen, and investing the proceeds in the government securities of a higher-yielding one, like the dollar or euro. The same theory is used for gold carry trades, with unwinds leading speculators to buy back short bullion positions.

One dollar was recently buying 121.635 yen, down from 121.80 yen late Monday, with the modest weakness in the yen perhaps triggering stops placed by carry-traders. The euro was recently worth $1.2959, not much changed from $1.2953 previously.

Turning to the technical analysis perspective, at least one observer sees a setup in the charts for a strong move up.

"A very bullish technical picture has developed," says Peter Grandich, editor of The Grandich Letter, who notes that gold prices have withstood a stronger-than-expected greenback, as well as falling energy prices.

Crude oil prices, considered a key factor in causing inflation, have declined about 10% since the beginning of the year, while spot gold prices have remained steady. Some investors purchase gold as a hedge against a rising price level, and the robust performance of bullion, despite the likelihood of reduced inflation concerns, looks encouraging for the bulls, Grandich explains.

In the official sector, the European Central Bank announced net sales of 36 million euros of gold and receivables last week, or about 2.3 tons. The transaction reflects selling by one bank in the ECB system and purchases by another, with the latter no doubt encouraging the bulls.

In the precious metals patch, Randgold Resources ( GOLD) was gaining more than many, up 1.8% recently, while AngloGold Ashanti ( AU) was losing less than 0.1%.

Turning to base metals, benchmark copper contracts bounced 2 cents to close at $2.56 a pound on the Comex following Monday's 10-cent drop.

Elsewhere, Deutsche Securities downgraded shares of miner Southern Copper ( PCU) to hold from buy, but the stock still bounced, up 1% recently.

Friedman Billings Ramsey took Phelps Dodge ( PD) down a notch to a market perform rating from outperform. It also trimmed its stock-price target on Freeport McMoRan Copper & Gold ( FCX) to $69 a share from $74, but maintained an outperform rating on the shares. Phelps was up 1% recently, while Freeport was adding 2.2%.

As for ferrous metals, U.S. Steel ( X) reported better-than-expected fourth-quarter results after the close Monday. The news helped boost the stock, up 4.5% in afternoon action.

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