By Apeksha Nair
BENGALURU (Reuters) - Gold prices inched higher on Tuesday on safe-haven buying, but upside potential for the metal was capped by a firm dollar and outlook for further interest rate hikes in the United States.
Spot gold rose 0.1 percent to $1,313.54 per ounce at 0325 GMT.
U.S. gold futures for June delivery were, however, down 0.4 percent at $1,313.40 per ounce.
The rising tensions in Gaza induced some safe-haven buying for gold earlier in the session, ANZ analysts said in a note.
Israeli troops shot dead dozens of Palestinian protesters on the Gaza border on Monday when the high-profile opening of the U.S. embassy to Israel in Jerusalem by the Trump administration raised tension to boiling point after weeks of demonstrations.
"We're seeing little sparks of interests on the back of these issues but at the moment it doesn't look significant enough to raise concerns over the medium-term which support a more sustained level of safe-haven buying," ANZ analyst Daniel Hynes said.
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Meanwhile, a firmer dollar and stronger U.S. bond yields on Tuesday, after a Federal Reserve official backed the case for further interest rate hikes in United States, were limiting upside for gold. [USD/]
"The market's been waiting for the next rate hike by the Fed... and I think gold prices are going to remain under pressure till we get through that hike," Hynes said.
The U.S. central bank is widely expected to raise benchmark interest rates at its next policy meeting in June.
Higher interest rates tend to boost the dollar and push bond yields up, making greenback-denominated gold more expensive for other holders and denting its non-yielding appeal.
The U.S. yield curve could invert later this year or early 2019, St. Louis Federal Reserve James Bullard said on Monday, a scenario which has preceded recent U.S. recessions.
Elsewhere, three European Central Bank policymakers stuck with an upbeat assessment of the euro zone economy on Monday, shrugging off signs of a slowdown in inflation and activity.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.17 percent to 856.17 tonnes on Monday.
Spot gold may retest a support at $1,302 per ounce, Reuters technical analyst Wang Tao said.
In other precious metals, silver was unchanged at $16.50 per ounce. Platinum rose 0.2 percent to $906.50 per ounce, while palladium was 0.1 percent lower at $994.50.
(Reporting by Apeksha Nair in Bengaluru; Editing by Sunil Nair)
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