Gold prices rose Tuesday, buoyed by economic uncertainties including the U.S. debt ceiling stand-off as traders braced for inflation readings that could influence the Federal Reserve's interest rate strategy.
Spot gold rose 0.5% to $2,030.91 an ounce by 1151 GMT while U.S. gold futures gained 0.3% to $2,039.60.
Though expectation of a Fed rate cut "is a bit too optimistic and early," gold could consolidate around $1,980-$2,060 in the short term, said Carlo Alberto De Casa, external analyst at Kinesis Money.
For the time being, markets are also in "wait and see" mode because U.S. consumer price index (CPI) data due on Wednesday will have a bearing on the Fed's rate decision, De Casa added.
While bullion is considered an inflation hedge, higher interest rates dent the non-yielding asset's appeal.
Traders are currently pricing in an 85.7% chance of the U.S. central bank keeping rates on hold in June after Fed Chair Jerome Powell said last week that policy decisions will be data driven and hinted at a likely pause to its rate hike cycle.
Investors are also monitoring developments in the country's banking sector and its debt ceiling.
Elsewhere share markets dipped on Tuesday as traders were kept on edge by weak Chinese trade data and the impasse over the U.S. debt ceiling.
However, Commerzbank analyst Carsten Fritsch said in a note that there is no scope for the Fed to implement rate cuts this year and gold is likely to remain above the $2,000 mark.
Indicative of investor sentiment, holdings in SPDR Gold Trust - the world's largest gold-backed exchange-traded fund - hit their highest since Oct. 18 at 937.55 tonnes on May 8 after net inflows of more than 11 tonnes this month.
Spot silver fell 0.3% to $25.49 an ounce while platinum rose 0.4% to $1,074.35 and palladium gained 0.4% to $1,559.81.
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