Gold drifts lower, tracks oil ahead of Fed

By Jan Harvey and Raissa Kasolowsky

LONDON (Reuters) - Gold drifted lower in Europe on Wednesday, tracking oil, but held within a range as the market waited for a key rate decision from the Federal Reserve and its statement to find more clues on future monetary policy.

Gold traded at $882.30/883.30 an ounce at 10:18 a.m. EDT from $888.70/889.70 an ounce late in New York on Tuesday.

Oil, a key external driver of gold, dropped to just below $136 a barrel ahead of U.S. government inventory data expected to show crude stocks fell for a sixth consecutive week.

"I think the drop in oil is the most likely scenario for the drop in gold but it is wedged in a pretty tight range," said analyst Michael Jansen, at JP Morgan.

"Positions are fairly small ahead of the rate decision."

The U.S. central bank is widely expected to leave interest rates unchanged at 2 percent. However, if it fails to adopt a widely expected hawkish tone in its statement, the dollar could suffer, buoying gold.

Gold moves in the opposite direction to the dollar, as it is often bought as an alternative investment to the U.S. currency. Dollar-priced gold also becomes cheaper for holders of other currencies as the greenback softens.

"If people are ruling out any early increases in interest rates, then you could see this as slightly negative for the dollar, which would be positive for gold," said Daniel Smith, an analyst at Standard Chartered.