That bodes well for non-interest bearing gold which fell more than 10 percent last year after the Fed lifted rates for the first time in nearly a decade in December.
The Federal Open Market Committee meets this week and is widely expected to leave its federal funds rate unchanged at 0.25-0.50 percent when policymakers conclude their meeting on Wednesday.
Falling inflation assumptions, coupled with turbulence in global markets could lead them to signal deepening concern over the outlook for the U.S. and world economy.
Spot gold was up 0.2 percent at $1,100.06 an ounce by 0237 GMT, after gaining nearly 1 percent last week.
“Given the turbulence in financial markets, the Fed might not be able to hike interest rates too many times in 2016,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.
“If gold can stay above $1,100 in the coming days, it may signal a further rebound, maybe even to $1,200 in the coming months.”
Expectations for a March rate increase are already starting to fade, and economists polled by Reuters now forecast 3 hikes in 2016 rather than the four initially floated by the Fed.
Gold’s gains, also spurred by a softer dollar, came despite higher equities as Asian stocks tracked Wall Street’s rally on Friday.
The precious metal had benefitted from investor aversion towards risky assets that has hit global stocks and crude oil. It peaked at $1,109.20 last week, its loftiest since Jan. 8.
U.S. gold for February delivery gained 0.4 percent to $1,100.60 an ounce.
Hedge funds and money managers increased their bullish bets in COMEX gold in the week to Jan. 19, and also boosted their bullish bets in silver to the highest in more than two months, U.S. Commodity Futures Trading Commission data showed on Friday.
Spot silver climbed 0.6 percent to $14.09 an ounce and palladium was up 0.3 percent at $495.50. Platinum climbed 0.5 percent to $833.76 per ounce, regaining some lost ground after skidding to a seven-year low of $806.31 last week. ~ Neal Bhai Reports