Investing.com - Fears of a global recession are giving gold an early boost ahead of this week's Fed decision on rate hikes, with the market bracing for a rally should the central bank stall on an increase or even resort to dovish language after approving one.
The yellow metal faces a pivotal period just before the year end with the Fed scheduled to decide on whether it should hike rates for a fourth time this year. The market has priced in a 75.8% chance of a quarter-point increase Wednesday.
With the market betting the Fed will pause its tightening cycle after December, the dollar is expected to gain modestly if there is indeed a hike on Wednesday.
But if the central bank stands pat, it could be a precursor to sharp weakness in the greenback in early 2019, a factor that some say may drive gold toward the $1,300 levels last seen in May.
Benchmark COMEX gold futures for February settled up $10.40, or 0.84% at $1,251.80 per troy ounce, for its sharpest one-day gain in two weeks.
Gold rallied as U.S. stocks sank again, with the Dow racking up another 400 points in losses in late-afternoon trading.
Outside of the U.S., China reported weaker-than-expected retail sales data, which grew at its weakest pace since November 2003, while Britain raced to meet its Brexit deadline with an embattled Prime Minister Theresa May having a little more than 100 days for the task.
The Dollar Index, which hit 19-month highs of 97.715 last week, fell 0.4% to 96.528.
"The probability reading is high enough for the Fed to do a rate hike on Wednesday, but they could also get dovish with the language in their release, so there's a chance of the dollar testing the 200-Day Moving Average of $1,272 if that happens," said Philip Streible, senior market strategist for precious metals at RJO Futures in Chicago.
"But should the Fed stall on a hike for any reason, then all bets are on for a full-fledged gold rally, including a test of $1,300 levels."
In the trade of other precious metals on COMEX, silver rose by 0.8% to $14.75 per ounce.
Palladium gained 1.1% to $1,184.70 per ounce, while sister metal platinum climbed 1.2% to $794.90.
In base metals, COMEX copper fell 0.5% to $2.76 per pound.