Gold steadied below $1,250 an ounce on Monday after its biggest weekly drop in more than six months, with moves muted ahead of an expected interest rate hike from the U.S. Federal Reserve this week.
Spot prices fell 2.5 percent last week, their biggest weekly drop since May. The Fed is widely tipped to lift rates at its two-day policy meeting ending Wednesday, but its accompanying statement will be closely watched for any surprises. The bank is expected to increase rates another two or three times in 2018, but still-sluggish inflation and wage growth has raised question marks over that view.
"The FOMC's policy statement, Fed Chair Yellen's final press conference in charge, and the update to the summary of economic projections will be closely parsed for signs the Fed's longer-term intentions," Mitsubishi analyst Jonathan Butler said.
"Though we expect few major changes to Fed policy until new Fed Chair Powell takes office, dovish language or any caution on the future pace of interest rate hikes ... would give some support to gold by weakening the dollar and lowering Treasury yields."
Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. In the wider markets, world stocks rose and equity volatility neared a record low ahead of a raft of central bank rate decisions, while newly launched bitcoin futures shot above $18,000.