Gold continue to hold its gains witnessed this week underpinned by a slew of soft US economic data that dented dollar strength and pushed back expectations on interest rate hike by the Federal Reserve.
The yellow metal prices traded at its highest level in three weeks on Wednesday, holding firm at $1,210 per ounce, following a gain of about 3% in the past two days.
The precious metal has been finding support in recent sessions by a string of negative surprises in US activity data, which indicated a slowdown in momentum of US economy following a year of robust growth.
Gold prices also head higher ahead of a statement release by the Federal Open Market Committee (FOMC) after two-day meeting that concludes on Wednesday, which is widely expected to hint at US central bank delaying the start of monetary tightening cycle to later this year.
"We expect little change to the FOMC statement, as the Fed seems to be in wait-and-see mode, held in place by soft growth in Q1," said Nordea Markets in a note.
Gold is expected to trade highly volatile before FOMC releases its statement and the metal prices are anticipated to strengthen further if the committee turns out to be dovish. "We expect the FOMC to maintain a very cautious tone this week, doing little to dissuade the market from pricing only one rate hike this year," said Societe Generale in a note.
Investors also await the data on first estimate on gross domestic product (GDP) growth in the US for the first quarter, which is scheduled to release ahead of Fed statement.
"We expect US GDP growth to have eased markedly to just 0.8% q/q annual rate in Q1. Both net exports and fixed investments are expected to have been a drag on growth in Q1," said Danske Bank in a note.
However, the dollar is expected to see some renewed interest from investors if the FOMC considers the recent softness in US data as short-lived, hurting the gains witnessed in gold in recent sessions.
"We still see potential for renewed USD buying in particular on the back of tonight's FOMC meeting where we believe that the FOMC will downplay the recent weakness in US data signalling that this was primarily driven by temporary factors," said Danske Bank.
Capital Economics expects the gold prices to rebound to around $1,400 per ounce by the end of 2015, mainly due to increased buying by households and central banks in emerging economies.
The research firm also sees huge potential for upside in gold led by increased safe-haven buying if the crisis in Greece escalates.