BENGALURU, Jan 30 (Reuters): Gold recovered from a one-week low on Tuesday as the dollar reversed gains and bond yields came off their highs, but short term risks were to the downside as traders awaited a Federal Reserve policy meeting and US jobs data.
US Treasury yields - the benchmark for world lending rates - moved above 2.7 per cent overnight, their highest in 3-1/2 years, helping the dollar off its lows and initially weighing on gold until the trends were reversed.
Still, markets are bracing for potentially hawkish language from the Federal Reserve, which will begin its two-day policy meeting on Tuesday, as all signs are that US economic growth is picking up steam.
"On Friday, US jobs data should confirm the strong picture for the US economy, which speaks in favour of rate rises and a strong dollar, so in the short term gold is under pressure," said Mitsubishi analyst Jonathan Butler.
He added, however: "The dollar is still very much in a long term downtrend and even if we see US yields break out that causes turmoil in other markets especially equities, so we could see risk hedging in gold on the back of that."
Spot gold was up 0.4 per cent at $1,344.76 per ounce at 1120 GMT, after a 0.7 per cent drop in the previous session. Earlier in the day, bullion hit its lowest since Jan 23.
US gold futures were 0.3 per cent higher at $1,343.90.
World equity markets were in their biggest two-day dive in six months, helping safe haven gold, while the dollar index slipped back after climbing overnight amid firmer bond yields.
Rising bond yields increase the opportunity cost of holding non-yielding bullion, while also strengthening the dollar, thus making dollar-priced gold costlier for investors holding other currencies.
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