"In gold we're seeing mostly buying on the dip in equities and the fact that traders do believe that the market has priced in a quarter-point increase from the Fed in interest rates," said Bob Haberkorn, senior markket strategist at RJO Futures Spot gold gained 0.3 percent at $1,317.49 per ounce by 1:33 p.m. EST (1733 GMT), having earlier dropped to $1,307.51, its lowest since March 1.
US gold futures for April delivery settled up $5.50, or 0.4 percent, at $1,317.80 per ounce. Non interest-bearing gold is highly sensitive to rising US interest rates, because it becomes less attractive than assets that bear interest.
The price of gold has bounced after each of the five previous US rate hikes and is expected to again, traders said, citing geopolitical risks, uncertainty over an impending trade war and current US debt levels. The two-day Federal Open Market Committee (FOMC) meeting begins on Tuesday, with the US Federal Reserve expected to raise interest rates for the first time this year on Wednesday.
"I think the overall economic recovery is good enough for the (US) central bank to consider a faster pace of normalization of monetary policies," said Mark To, head of research at Hong Kong's Wing Fung Financial Group. Among other precious metals, silver shed 0.1 percent at $16.29 an ounce. While speculators have pulled back from US futures in both gold and silver, investors in exchange-traded funds have regarded the low prices as a buying opportunity, Commerzbank said.
"In our opinion, market participants are positioned too pessimistically in silver, so we expect the silver price to recover," the German bank said in a note. Palladium dropped 0.6 percent at $988.50 per ounce, while platinum gained 0.9 percent at $951.70, after touching its lowest since Jan. 3 at $936.50.