Gold recovered after falling to its lowest in nearly two weeks on Tuesday as investors nervously awaited a US Federal Reserve meeting that begins later in the day for clues about the timing of any interest rate hike.
The Fed is likely to announce the end of its massive bond-buying stimulus when it wraps up the two-day meeting on Wednesday. Investors will be scrutinising the Fed's statement for signals about a rate increase and its view on the global economy.
Spot gold dropped to USD 1,222.20 an ounce, its lowest since Oct. 15, before recovering to trade up 0.3 percent at USD 1,228.35 an ounce by 0346 GMT.
Gold could test resistance at USD 1,233 an ounce, according to Reuters technicals analyst Wang Tao.
"There were some stops triggered once we breached yesterday's low but China walked in and pushed up gold," said a trader in Hong Kong.
"People are nervous ahead of the FOMC and big position changes are unlikely. For the moment, I think we will hold between USD 1,220 and USD 1,240," he said, referring to the Fed's Federal Open Market Committee.
The Fed will likely reinforce its stated willingness to wait a long while before hiking interest rates after a volatile month in financial markets that saw some measures of inflation expectations drop worryingly low.
A delay in any hike in interest rates could boost gold, a non-interest-bearing asset.
With US inflation weak, the European economy stumbling and the dollar on the rise, the big question is to what extent Fed officials acknowledge risks to their expectations that the U.S. recovery will continue to strengthen and allow them to raise rates around the middle of next year.
Asian shares were modestly higher on Tuesday, while the dollar held steady.
Gold has gained nearly 4 percent since dropping to a 15-month low earlier this month on global slowdown fears. The precious metal is often seen as a hedge when riskier assets such as equities are out of favour.
In the physical markets, data on Monday showed China's net gold imports from main conduit Hong Kong jumped to a six-month high in September as the world's biggest consumer stocked up ahead of its National Day holiday.
But imports have slowed since the holiday, traders said, possibly putting more pressure on gold.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
