New York (Platts)--14Dec2009/532 pm EST/2232 GMT

Gold futures on the COMEX division of the New York Mercantile Exchange made modest gains Monday morning after the dollar eased against the euro in the wake of last week's losses, which wiped close to $100/oz off the price of gold.

The active February contract was trading at $1,124.30 at 105 pm EST (1805 GMT), up $4.40/oz from Friday's settlement.

Traders said that both the dollar and gold were doing little ahead of a two-day meeting of the Federal Open Market Committee of the Federal Reserve on interest rate policy. The Federal Reserve is due to announce its decision on interest rates at around 215 pm EST (1915 GMT) on December 16.

There has been much speculation over the past week that the Fed may indicate it is willing to raise interest rates sooner than previous indications as a result of stronger-than-expected unemployment and manufacturing data. This speculation resulted in the dollar reaching five-week highs last week and a significant correction in gold prices. Further pressure came from concerns over national debts in Greece and ongoing worries about Dubai's credit crisis.

Earlier Monday, Abu Dhabi came up with an unexpected $10 billion bailout offer to neighboring emirate Dubai to help avoid a national debt default. The move, along with a takeover deal by US oil major Exxon Mobil for natural gas supplier XTO Energy, bolstered equities and risk appetite generally.

"The Abu Dhabi bailout was as unexpected as the Dubai credit crisis itself, so that's definitely supported equities and it's stoked up a bit of risk appetite and commodities are higher this morning," said an analyst. "For those long-term investors, they've been looking for the right signal of when to use the gold correction as an opportunity to buy more and this may have been enough for some of them. But I think the market could be very cautious ahead of the Fed's interest rate announcement."

A trader agreed that risk appetite had improved this morning.

"I think it had got overdone on the downside, in any case, so the stronger sentiment that's around from the Abu Dhabi bailout is being lapped up by gold investors, although the gains in gold are modest," he said. "The big question is what's the Fed going to do this week? If they don't change the language on the duration of low interest rates, I can see the dollar taking quite a dive in the second half of this week and gold climbing sharply. If they do indicate that interest rates could rise sooner rather than later, then the dollar will climb and gold could come back down to $1,000."

Federal Reserve Chairman Ben Bernanke said last week that inflation remained under control, leading several commentators to believe that the Federal Reserve is unlikely to change its interest rate policy. Nevertheless, speculation on a change in direction continued to support the dollar throughout most of last week.

--Anthony Poole, anthony_poole@platts.com