Gold prices rose 0.5 percent on Monday as investors expect the U.S. Federal Reserve to announce more stimulus measures after their policy meeting on Wednesday.
Despite the higher-than-expected US nonfarm payrolls report on Friday, which led gold to dip briefly, the Fed is still likely to stay accommodative and continue its bond buying program.
The Fed is expected to announce more quantitative easing measures by expanding its bond buying program by $45 billion a month as the current Operation Twist program expires end of December. More QE will result in a weaker dollar and this will be supportive of gold. The reason is because gold prices and the USD usually have an inverse relationship.
Further weighing on the dollar is the slow progress on the U.S. fiscal talks. There are concerns that policymakers in Washington will not be able to resolve the issue before $600 billion worth of tax hikes and spending cuts begin to kick off early next year which would trigger another recession.
As the budget discussion continue, investors are likely to wait in the sidelines and consequently result in keeping gold prices trapped within a range of $1,680 and $1,750.
In early Monday trading, gold rose towards the highest level in a week, reaching $1,713 an ounce by 1100GMT on Monday, up $10 so far on the day.