Gold prices (XAU/USD) recovered from a dip to around $2,690 during Asian trading hours on Friday after falling from a five-week high in the previous session. All eyes will be on the US Federal Reserve's (Fed) interest rate decision next week.

Gold purchases by central banks, including the People's Bank of China (PBOC), could provide some support to the yellow metal.

China's central bank resumed gold purchases in November after a six-month hiatus, increasing its reserves to 72.96 million troy ounces.

The move comes as Beijing signals a shift to a "moderately loose" monetary policy, with plans for a more proactive fiscal approach in 2024. Goldman Sachs analysts noted that the People's Bank of China (PBOC) "could even increase demand for Gold during periods of local currency weakness to boost confidence in their currencies." Additionally, rising tensions in the Middle East could boost demand for safe-haven assets, which benefits the precious metal.

Reuters reported that Israeli strikes killed at least 30 Palestinians and wounded 50 others sheltering at a post office in the central Gaza Strip, bringing the death toll in the enclave to 66 on Thursday.

On the other hand, speculation that U.S. President-elect Donald Trump's tariff policies could stoke inflation could persuade the Fed to take a more cautious stance on cutting interest rates.

This, in turn, could be a drag on non-yielding assets such as gold. According to CME Group's FedWatch Tool, traders are now pricing in a nearly 96.4% chance that the Fed will cut interest rates by 25 basis points (bps) at its December meeting.

Source: FXStreet