Gold prices hit a one-month high on Monday as a weaker dollar and political turmoil in the United States boosted sentiment ahead of the Fed's monetary policy meeting later this week.
Spot gold was was up 0.05 percent at $1,255.02 an ounce. It hit a 4 week high of $1,257.18 an ounce in early trade, having risen 2.1 percent last week.
U.S. gold futures for August delivery settled at $1,254.30.
Investigations into alleged Russian meddling in the 2016 U.S. presidential election and whether there was collusion with President Donald Trump's campaign are viewed as obstacles to the administration's plans to boost economic growth. That is a negative for the dollar as it reinforces the idea of softer growth in the United States and undermines the case for a further rise in U.S. interest rates.
"The dollar and the decision on U.S. interest rates will be a major driver this week," said SP Angel analyst Sergey Raevskiy, adding that the market was also reacting to U.S. politics. A lower U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, potentially boosting demand.
A falling dollar saw gold gain more than 2 percent last week. The Federal Reserve's two-day meeting starts on Tuesday and ends on Wednesday with a statement.
"Recent rhetoric suggests a chance that an announcement on balance sheet reduction could come this week," Societe Generale analysts said in a note. "Given the current mood, however, there is no guarantee that such a decision would support the greenback; markets may simply perceive this as the dovish alternative to an actual rate hike."
In the physical market, traders are watching demand in India, a top consumer of gold, where in early June the government levied a 3 percent tax on gold effective July 1, lower than the 5 percent expected. However, a deputy governor of the Indian central bank said over the weekend that a ban on high-value cash since last November had significantly boosted investment in financial products.
"As a matter of comparison, the $1.27 billion invested in financial assets in June would have bought roughly 1 million ounces of gold," Investec analysts said in a note.
Overall in Asia, demand is sliding due to higher prices and a seasonal slowdown.
On the technical front, gold resistance comes in at around $1,260, near a Fibonacci retracement level, while support is at $1,205, the 100-day moving average.