Gold rose on Tuesday to above $1,500, recovering from a more than 1% slide in the previous session, as U.S. yields fell on increasing expectations for looser monetary policy to address fears of a global downturn.
Spot gold was up 0.72% at $1,506.26 per ounce, after falling to a near one-week low of $1,492.10 on Monday. U.S. gold futures rose 0.35% to $1,516.8.
Monday's correction followed a sharp price rally earlier this month that took gold to six-year highs, largely on the back of U.S.-China trade war concerns, expectations for further cuts in U.S. interest rates and as the U.S. yield curve inverted for the first time since 2007.
"The yield curve inverting has spooked investors in the U.S.," said Bob Haberkorn, senior market strategist at RJO Futures, adding "People are kind of looking to buy dips ahead of the Federal Reserve's minutes coming out and what news will come out at Jackson Hole."
Investors will closely scan the minutes from the U.S. Fed's July policy meeting due on Wednesday, with focus on the central bank's Jackson Hole seminar and the Group of Seven summit this week.
"If they (the Fed) talk about more interest rate cuts for the rest of the year, gold will continue higher, but if they say 'wait-and-see', gold will probably sell off," Haberkorn said.
Lower U.S. interest rates put pressure on the dollar and bond yields, increasing the appeal of non-yielding bullion.
U.S. stocks opened slightly lower after a three-day run, while U.S. Treasury yields fell as the prospect of more central bank easing boosted demand for government debt.
"Participants will be eager to hear what Fed Chairman Jerome Powell has to say about the future of interest rates, especially now that the bond market has already driven yields sharply lower on the long end," INTL FCStone analyst Edward Meir said in a note.
The shift in sentiment towards riskier assets contributed to a more than 1.2% drop in gold prices on Monday, its biggest daily percentage decline in a month. But prices have risen nearly 17% this year and more than $80 so far this month.
Meanwhile, palladium climbed 1% to a more than two-week high of $1,487.97 per ounce.
Russia's Norilsk Nickel (Nornickel), the world's largest producer of the autocatalyst metal, said the global palladium market will remain in structural deficit this year due to growing demand from the auto sector amid tighter emission regulations.
Elsewhere, silver rose above the $17 per ounce mark, gaining 1.5% to $17.11, while platinum fell 0.6% to $844.70.