Gold prices turned positive on weakness in equity markets after touching their lowest in more than two weeks on Monday ahead of a U.S. central bank meeting that could raise interest rates and signal three more increases this year.
Global equities were stuck in their worst run since November. U.S. stocks slid after Facebook shares sank after reports that its user data was misused led to concerns over broader privacy violations, sparking a sell-off in technology stocks.
"In gold we're seeing mostly buying on the dip in equities and the fact that traders do believe that the market has priced in a quarter-point increase from the Fed in interest rates," said Bob Haberkorn, senior market strategist at RJO Futures.
Non interest-bearing gold is highly sensitive to rising U.S. interest rates, because it becomes less attractive than assets that bear interest.
The price of gold has bounced after each of the five previous U.S. rate hikes and is expected to again, traders said, citing geopolitical risks, uncertainty over an impending trade war and current U.S. debt levels.
The two-day Federal Open Market Committee (FOMC) meeting begins on Tuesday, with the U.S. Federal Reserve expected to raise interest rates for the first time this year on Wednesday.
With an increase of 25 basis points seen as a done deal, one key focus is whether Fed policymakers forecast four rate hikes this year instead of the three projected at the December meeting.
"I think the overall economic recovery is good enough for the (U.S.) central bank to consider a faster pace of normalization of monetary policies," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.
Among other precious metals, silver gained 0.14 percent at $16.323 an ounce. While speculators have pulled back from U.S. futures in both gold and silver, investors in exchange-traded funds have regarded the low prices as a buying opportunity, Commerzbank said.
"In our opinion, market participants are positioned too pessimistically in silver, so we expect the silver price to recover," the German bank said in a note.