Spot gold was 0.2 per cent higher at $1,985.49 per ounce and U.S. gold futures gained 0.4 per cent to $2,000.70

Gold prices rose on Tuesday after reaching a three-week low in the earlier session as the dollar eased, while investors awaited key U.S. inflation data and major central bank policy meetings for hints on interest rates.

Spot gold was 0.2 per cent higher at $1,985.49 per ounce, as of 0737 GMT. U.S. gold futures gained 0.4 per cent to $2,000.70.

The dollar edged down 0.2 per cent against its rivals, making gold less expensive for other currency holders.

The Federal Reserve may not be so aggressive with rate cuts that are in accordance with current dovish market expectations. So, that has resulted in some profit-taking and short-term players taking a speculative bet on gold, said Kelvin Wong, a senior market analyst for Asia Pacific at OANDA.

An upbeat U.S. jobs report last week reined in hopes that the Fed could cut interest rates as soon as March.

All eyes will now be on the U.S. CPI report, due at 1330 GMT.

Economists polled by Reuters expect U.S. headline inflation to be flat for November and core inflation to be stable at an annual pace of 4 per cent – well above the Fed’s 2 per cent target.

The FOMC’s two-day monetary policy meeting will end on Wednesday with its interest rate decision and the release of its summary economic projections.

Traders widely expect the Fed to leave rates unchanged at 5.25 per cent-5.50 per cent this week and are pricing in nearly 77 per cent possibility of a rate cut in May, shows the CME FedWatch Tool.

Lower interest rates tend to support non-interest-bearing bullion.

Silver gained 0.4 per cent to $22.88 per ounce, while platinum added 0.4 per cent to $913.85, and palladium jumped 1 per cent to $966.73 per ounce.