Gold edged up overnight after falling to a one-week low earlier in the session as investors used the drop in prices to buy the yellow metal, with bullion holding a key technical level.
The focus was on the US Federal Reserve Chair Jerome Powell’s two days of testimony on monetary policy before the US Congress starting on Wednesday.
Spot gold rose 0.2 per cent to $US1,397.30 per ounce.
Earlier, prices hit the session trough of $US1,386.11, the lowest since July 2.
US gold futures settled at $US1,400.05 per ounce.
“The resurgence in US dollar reaching a three-week high moved gold at lower prices earlier in the session, following which we are seeing a little bit of bargain buying which has kept the market afloat,” said Alex Turro, market strategist at RJO Futures.
Earlier in the session the US dollar rallied on the likelihood of a modest quarter-point interest rate cut by the Federal Reserve this month.
Expectations of a 50 basis point rate cut have fallen to 5.9 per cent from 25 per cent last week, propelling the US dollar index to a three-week high.
Chances of a 25 basis point cut were at 98 per cent.
The US dollar was also supported by news the United States and China were set to relaunch trade talks this week.
“The key technical support around the $US1,385.00 area has held, encouraging some chart-based buying,” said Jim Wyckoff, senior analyst with Kitco Metals.
Despite gold breaking below the key $US1,400 level, the outlook for gold still remained positive, with analysts citing support from Middle East tensions, the Chinese-US trade conflict and buying by central banks.
Top gold consumer China’s reserves jumped to $US87.27 billion from $US79.83 billion at end-May.
“If Powell confirms a dovish view, we will see some renewed (US) dollar weakness and support for gold; bond yields will also find some support,” said Saxo Bank analyst Ole Hansen.
Otherwise, he said, gold “could see some additional long liquidation”.
On the technical front, gold is consolidating around $US1,400, plus or minus $US20 per ounce, said Samson Li, a Hong Kong-based precious metals analyst at Refinitiv GFMS.
Hedge funds and money managers raised their bullish stance in COMEX gold in the week to July 2.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.15 per cent to 795.80 tonnes on Monday.
Among other precious metals, silver rose 0.5 per cent to $US15.10 per ounce.
Palladium was down one per cent at $US1,545.75 and platinum fell 0.3 per cent to $US811.25 per ounce.