Gold futures closed lower Wednesday, as the dollar rose against the euro and some investors opted for caution ahead of Thursday's Federal Reserve decision on interest rates

Gold for August delivery dropped $3.40 to $581 an ounce on the New York Mercantile Exchange, after earlier touching a low of $579.10.

"Another day of range play has been seen in the precious metals as traders seem content to sit on the sidelines ahead of tomorrow's potentially pivotal Fed rate decision," said James Moore of TheBullionDesk.com.

On the currency markets, the dollar posted gains against the euro Wednesday, putting pressure on gold.

Other metals prices were mixed. July silver was down 4 cents at $10.155 an ounce, July platinum dropped $10.10 at $1,178.2 an ounce and September palladium edged down $1.40 at $312.80 an ounce. July copper added 10.60 cents at $3.293 a pound.
Focus on the Fed

The Federal Reserve is widely expected to raise rates by another quarter point to 5.25% tomorrow, although some market players anticipate a half point increase.

Jon Nadler, investment products analyst at Kitco.com, said the Fed decision has been exhausted as a subject of worry for all markets, "and only a half-point surprise may make any difference at this point.

Still, the decision and some month and quarter-end window dressing "could shake things up before the end of the week," Moore said. For now, the current $550 to $600 range appears "pretty solid."

The precious metals market will remain volatile in the short term, but precious metals are still an attractive long-term investment given inflation worries, high oil prices and global political tensions, according to Donald Doyle, chief executive of Blanchard & Co. Inc, the biggest retail dealer of rare coins and precious metals in the U.S.

"We think the impending rate hike will come with the qualification that this may be the last rate raise followed by a pause," Doyle said. "The Fed's leadership doesn't want to establish an image that makes them look responsible for an economic slowdown in the face of what are currently tame inflation numbers."

Investors should view the current market correction as a good time to add to or build positions, he said.

Peter Grandich, editor of The Grandich Letter, said the market should look past tomorrow's decision.

"The upcoming holiday period in the U.S. should have more of an impact on gold's trading pattern than the Fed interest rate decision," Grandich said.

On the supply side, copper inventories rose by 778 short tons to 8,174 short tons as of late Tuesday, according to Nymex data. Silver supplies rose by 391,913 troy ounces to 102.8 million.