Gold rose to a two-week high on Wednesday, gaining for the third straight session and breaching the 200-day moving average amid uncertainty over the timing of a U.S. interest rate increase and ahead of the final U.S. presidential debate.
Spot gold gained 0.5 percent to $1,268.50 an ounce. U.S. gold futures were up 0.5 percent and settled at $1,269.90 an ounce for December.
Spot prices had shed about 7 percent over the past three weeks, as markets re-priced the likelihood of a Federal Reserve's rate hike in December.
The metal is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets.
However, a retreat in the dollar, which fell 0.3 percent against a basket of six main currencies after U.S. consumer prices showed a moderation in underlying inflation, prompted markets to trim bets on a December Federal Reserve rate hike.
"Technically, gold is well supported above $1,250 an ounce ... today's push in the $1,270 area is a positive signal ahead of the U.S. elections and the possible Fed rate hike in December," ActivTrades chief analyst Carlo Alberto De Casa said.
The metal is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets.
"Since (Fed Chair) Janet Yellen's speech last Friday, there is the growing view, which I think is the right view, that the
Fed is going to move very slowly. The market has discounted a December rate hike," said Bill O'Neill, co-founder of LOGIC Advisors.
The third and final U.S. presidential debate between Donald Trump and Hillary Clinton starts at 9 p.m. ET (0100 GMT) on Wednesday.
"The uncertainty that brings about is a little supportive," O'Neill added.
Fed fund futures imply around a 65 percent probability of the Federal Reserve raising interest rates by December, down from 70 percent before the CPI data.
"The market is keeping an eye on the potential rate hike in December, which we don't expect because once we get close to the meeting, the Fed will see that key figures are not doing well enough to justify another rate hike and there will be some support for gold," said Danske Bank senior analyst Jens Pedersen.
A European Central Bank's policy meeting on Thursday will also be monitored by markets, Pedersen said.
The metal was also benefiting from lower European shares, indicating waning investor appetite for risk.
"We remain relatively negative on gold short term despite a stronger start to the week," INTL FCStone said in a note.
"We expect further dollar strengthening going into Q4 on account of an election victory for Hillary Clinton along with the likelihood of a Fed rate hike."
The U.S. dollar turned up slightly against a basket of six main currencies, as data on Wednesday pointed to sustained housing market strength. Spot silver was up 0.2 percent at $17.63 an ounce. Platinum rose 0.2 percent to $943 and palladium fell 0.3 percent to $636.50.