Gold rose on Tuesday as a weaker dollar and rallying crude oil prices prompted bullion investors to cover bearish bets ahead of a closely watched policy statement by the Federal Reserve.
Silver outperformed gold, as a technical indicator showed Tuesday's gains sent the white metal out of oversold conditions.
The Fed opened its two-day meeting earlier in the day, with an announcement scheduled for Wednesday. Some analysts believe the Fed could signal it may begin raising rates sooner than mid-2015, the current consensus target.
Despite Tuesday's gain, gold was within $10 to its eight-month low, with investors unwilling to place big bets as they awaited clues on the timing of the next U.S. interest rate hike.
The recent drop in prices failed to attract any robust physical buying from Asia, the world's biggest gold-consuming region, dealers said.
"Some bargain hunters may nibble at these prices hoping for year-end holiday demand for jewelry," said George Gero, vice president at RBC Capital Markets in New York.
Spot gold was up 0.2 percent on the day at $1,235.29 an ounce by 3:53 p.m. EDT (1953 GMT).
U.S. COMEX gold futures for December delivery settled up $1.60 an ounce at $1,236.70.
Any increase in interest rates would dim the appeal of non-interest-bearing assets such as gold, also seen as a hedge against inflation brought by central bank actions.
In top buyer China, daily trading volume of 99.99 percent purity gold on the Shanghai Gold Exchange hit a two-week high on Monday. Premiums climbed to about $4-$5 an ounce, compared with $2-$3 last week.
The cost to lease gold fell to its lowest since April 2013 on Tuesday, reflecting lackluster interest for gold miners and market participants to hedge against bullion's price risks, analysts said.
Silver was up 0.6 percent at $18.68 an ounce. The 14-day relative strength index (RSI) rose to 31.3 on Tuesday from 25 on Monday, Reuters data shows. While RSI at under 30 suggests oversold conditions, a reading above 70 indicates a market is overbought.
Platinum was up 0.2 percent at $1,362.74 an ounce, while palladium rose 0.6 percent to $839.
(By Frank Tang and Clara Denina; Additional reporting by A. Ananthalakshmi in Singapore; editing by David Holmes, G Crosse, Pravin Char and Dale Hudson)