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Gold eased slightly overnight as risk sentiment recovered and the dollar held firm, but expectations of dovish monetary policy from global central banks capped bullion’s losses and kept prices above the $US1,550 an ounce level.

Spot gold was down 0.1 per cent at $US1,556.67 an ounce. US gold futures settled down 0.1 per cent at $US1,556.7.

“Investors are actually selling excess positions, and that is keeping the prices capped,” said Daniel Ghali, commodity strategist at TD Securities.

“On the other hand, we’re also seeing a steady flow of interest in (gold), and markets are currently building as capital looks to shelter itself from negative real rates across the globe.”

Investors will keep a close eye on the European Central Bank’s first policy meeting of the year on Thursday, while the US Federal Reserve’s first meeting is scheduled for January 28-29.

Both banks are expected to be dovish.

The dollar index has gained about 1.2 per cent since the start of this year.

In 2020, “precious metals remain a story linked to easy monetary policy globally and broad US dollar weakness,” UBS analysts said in a note.

“Apart from low US real rates and a weaker dollar, gold should benefit from any sudden spikes in market volatility due to late cycle dynamics and ongoing geopolitical noise, especially when we approach the 2020 US presidential election,” UBS said, forecasting gold to rise to $US1,600 this year.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar.

“Concerns are growing that we will see a return of risk aversion once the Fed signals the balance sheet will no longer keep growing at a pace of $US60 billion a month or if we see phase-two (US-China trade) talks hit a road block,” said Edward Moya, a senior market analyst at OANDA, in a note.

The Chinese response and quick updates about the new coronavirus has boosted optimism that its spread would be contained, helping world stock markets recover.

Worries the outbreak could hit economic activity ahead of the Lunar New Year festivities in China had knocked equities off record peaks on Tuesday.

Elsewhere, palladium gained 2.2 per cent to $US2,455.33 an ounce, having slid by about 4 per cent in the previous session.

A structural change in demand after tighter emission rules in some countries will boost palladium demand, said Ghali.

Palladium touched a record high of $US2,582.19 on Monday.

Silver rose 0.2 per cent to $US17.81, and platinum was up 1.4 per cent at $US1,013.37.