BENGALURU Gold prices edged lower on Tuesday, as investors sought more clarity around the US Federal Reserve's policy outlook, while a softer dollar capped further decline, keeping bullion in a narrow range.

Spot gold eased 0.1% to US$1,959.59 per ounce by 0427 GMT, while US gold futures held steady at US$1,975.60.

The dollar index eased slightly, making bullion more affordable for investors holding other currencies. The yield on 10-year Treasuries fell after weaker US services sector data on Monday. 

"The Fed's data-dependent stance will mean that rate expectations may continue to see huge swings due to its higher sensitivity to incoming economic data, with a key look-ahead being the US May CPI report next week," IG market analyst Yeap Jun Rong said.

A survey from the Institute for Supply Management showed that the US services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Fed's fight against inflation.

Lower interest rates tend to lift gold, as it reduces the opportunity cost of holding the non-yielding asset.

"(But) the constantly-shifting narrative around how high the terminal rate will have to be, and the timeline for rate cuts could challenge gold prices' upside for now, until greater clarity is being presented on that front," Yeap said.

Traders have priced in a 76% chance that the Fed will hold interest rates at its June 13-14 policy meeting, according to CME Group's FedWatch tool.

Reuters technical analyst Wang Tao said spot gold may retest a support at US$1,938 per ounce, as the bounce triggered by this level seems to be ending around a resistance at US$1,964.

Spot silver rose 0.1% to US$23.6163 per ounce, platinum added 0.4% to US$1,034.08, and palladium advanced 0.7% to US$1,423.35.

  - Reuters