The Fed began a two-day meeting on Tuesday which is widely expected raise the central bank's target rate by 25 basis points, ending eight years of loose monetary policy. Higher rates would dent demand for non-interest-paying gold, while boosting the dollar. The Fed decision will be released on Wednesday at 1900 GMT.
Spot gold rose 0.5 percent to $1,065.60 an ounce by 0322 GMT, after closing lower in the last two sessions.
"Gold may drop in an initial reaction to a hike. But as the hike is generally expected, any selloff may be relatively short-lived," said HSBC analyst James Steel.
However, a hawkish tone along with the rate hike could trigger a strong rally in the dollar that could make it tough for gold to recover, Steel said.
Investors have sent gold down 10 percent this year in anticipation of higher rates and the dollar strength. The metal fell to near-six-year lows earlier this month.
Some traders say a rate hike is already priced into gold, and any indications from the Fed on Wednesday that further rate hikes would be slow and gradual could send the metal higher.
However, others say it would be difficult for gold to hold on to a rally as the wider environment offers little to justify a rebound. They expect gold to drop to $1,000 or below.
"The gold market is devoid of any funds coming in from gold-backed exchange-traded funds and jewellery demand remains fairly soft," said INTL FCStone analyst Edward Meir.
The number of people holding the top gold ETF, SPDR Gold Trust, is at the lowest since September 2008.
From a technical perspective, gold should fall further, said ScotiaMocatta analysts.
"So far the $1,060 level has held but the risk remains for a test on previous major cycle low of $1,051. A break of $1,051 targets $1,000," they said.
By:
'The Force Awakens' with journey to recover a missing Skywalker.
So opens "The Force Awakens," with the now-iconic scrolling text to inform audiences that Skywalker (played by Mark Hamill) has disappeared after training Jedi soldiers. The First Order, a new evil army modeled on the Galactic Empire, is out to find and destroy him, while the Resistance, led by General Leia Organa - formerly known as Princess Leia - is hoping to find him first.
"Star Wars," created by filmmaker George Lucas, is set in an intergalactic world where the Force, an energy field drawn from the universe, can be used for the light side by the heroic Jedi fighters who fight to maintain peace - or the dark side by the evil Sith lords who want control over the galaxies.
The fiercely guarded plot of "The Force Awakens," co-written and directed by J.J. Abrams, centers on scavenger Rey's (Daisy Ridley) search for her lost family and rogue Stormtrooper Finn's (John Boyega) desire to escape his past.
A second trilogy of prequel films made between 1999 and 2005 focused on Vader's origins.
"The Force Awakens" kicks off with new droid BB-8 in the desert planet Jakku with Resistance fighter Poe Dameron (Oscar Isaac), who hides a piece of a map, leading to Skywalker, inside BB-8.
They are attacked by First Order Stormtroopers led by a villainous, masked - and at times petulant - Kylo Ren. Stormtrooper Finn decides to go rogue and break Dameron out.
As Rey and Finn are established as new franchise leads, they embark on a journey that finds both old and new characters often harkening subtly to the past.
The Resistance must once again destroy a deadly weapon, this time belonging to the Nazi-like First Order.
"Star Wars: The Force Awakens" opens in movie theaters worldwide starting on Wednesday night.
By: Piya Sinha-Roy.
Reporting: Piya Sinha-Roy.
Editing: Jill Serjeant.
Review: Emerging Market Formulations & Research Unit< Flagship Records.
For The #FacebookTeam