GOLD prices slipped to their lowest in more than two months on Tuesday as the dollar gained amid optimism over a U.S. debt ceiling deal and as reduced bets for a pause in the Federal Reserve's rate hike policy in June weighed on non-yielding bullion.

Spot gold was down 0.3% at $1,937.99 per ounce by 0719 GMT, hitting its lowest since March 17. U.S. gold futures dipped 0.4% to $1,936.80.

U.S. President Joe Biden said on Monday he felt good about the prospects for passage by Congress of the debt ceiling deal that he reached with House of Representatives Speaker Kevin McCarthy.

High volatility events such as the U.S. regional banking crisis, and whether or not an agreement would be reached on raising the U.S. debt ceiling are now passing, "reducing the markets' interest in gold as investors seek alpha," Michael Langford, director at corporate advisory AirGuide, said.

Fed officials, on the other hand, have in recent days turned up the heat with a hawkish outlook on interest rates, and that has to some extent also offset safe-haven flows around the U.S. debt ceiling situation as higher interest rates dull the appeal for zero-yield bullion.

"If later in the year a more dovish approach is taken, this then implies some level of easing of interest rates may occur, which will be seen as bullish for equities and also reduce the desire for investors to hold gold versus other more risk on asset classes," Langford added.

Markets are now pricing in a 37% chance of the Fed keeping rates on hold in June.

Gold's near-term outlook looks vulnerable, and prices could move towards $1,892 if it does not recover above $1,940 on Tuesday, OCBC FX strategist Christopher Wong said.

Spot silver fell 0.7% to $23.03 per ounce, while platinum rose 0.2% to $1,026.71. Palladium gained 1.3% to $1,433.63.

 - Reuters