Gold jumped as much as 2 percent on Tuesday after its biggest one-day drop this year, as the dollar slid and investors sought safe havens as oil plunged and an emergency rate hike by Russia failed to stabilize the ruble.
The dollar index fell 0.7 percent, its biggest one-day drop since mid-October, as turmoil in global foreign exchange markets drove investors to the safety of the yen and the Swiss franc.
Spot gold was last up 0.9 percent at $1,202 an ounce, off a high of $1,221.40 and recovering after a 2.5 percent plunge in the previous session. U.S. gold futures for December delivery pared earlier gains and was last down 0.3 percent at $1,204 an ounce.
Risk aversion is lifting gold, with oil reaching new lows and geopolitical tensions ratcheting up with the slide in the rouble and aggressive action by the Russian central bank to counter this, Mitsubishi analyst Jonathan Butler said.
"The rebound in the euro and the yen today has given some much-needed support to gold by depressing the U.S. dollar on a relative basis," he said.
Shares in European companies exposed to Russia fell sharply to lead a broad decline on Tuesday, as concern grew about the state of the Russian economy. The rouble sank 20 percent versus the dollar despite Russia's central bank ramping up interest rates overnight to 17 percent from 11.5 percent.
Plunging oil prices also roiled markets, with benchmark Brent crude futures sliding 3.5 percent to below $59 a barrel for the first time since May 2009.
Investors are now waiting to see if the Fed's final meeting of 2014 on Tuesday and Wednesday results in a more hawkish tone, with a statement and forecasts expected on Wednesday at 1900 GMT, followed by Fed chief Janet Yellen's press conference.
The U.S. economy has strengthened since the Fed's last meeting in October, when it reiterated that benchmark rates were unlikely to rise for a "considerable time." Officials will have to decide whether to replace that phrase despite below-target U.S. inflation and economic weakness in Europe and Asia.
In physical markets, gold imports in top consumer India reached 151.58 tons in November, according to data provided by India's trade ministry on Tuesday, a 38 percent increase from October.