Gold prices jumped 1% to above the key $1,800 level on Tuesday as the dollar dropped after the Bank of Japan's surprise policy tweak, while markets also weighed the outlook for the U.S. Federal Reserve's interest rate strategy.
Spot gold last rose 1.73% to $1,818.18 per ounce. U.S. gold futures gained 1.69% to $1828.00.
Lifting bullion's appeal among overseas investors, the dollar index eased on the day, as the yen soared after the Bank of Japan decided to review its yield curve control policy.
Spot gold is being given another chance to shine thanks to the dollar's pullback, said Han Tan, chief market analyst at Exinity, adding, "the next leg down for the dollar should send spot gold onto a new cycle high past $1,824.50."
"Traders and investors should keep the precious metal well bid going into 2023, as markets brace for the prospects of a U.S. recession and the accompanying Fed pivot," he added.
Fed Chair Jerome Powell last week said the central bank will deliver more interest rate hikes next year even as the economy slips towards a possible recession.
Bullion has shed more than $260 since its March peak as central banks stepped up efforts to fight soaring inflation.
Higher interest rates increase the opportunity cost of holding bullion that pays no interest.
"On the chart, $1,800 continues to be a tricky area for buyers which already faced a reversal back in August... (but) for now, it looks like the path of least resistance continues to be higher," said Daniela Hathorn, a market analyst at Capital.com.
Meanwhile, China grappled with surging COVID-19 cases, and the World Bank cut its growth outlook for this year and the next for the top bullion consumer.