Investing.com– Gold prices edged higher on Tuesday, extending their tepid performance as investors still remained cautious with the rising dollar following the U.S. Federal Reserve’s hawkish tilt.

Traders also refrained from placing large bets ahead of a shortened trading week due to the Christmas holiday.

inched up 0.2% to $2,616.95 per ounce, while expiring in February ticked up 0.2% to $2,633.89 an ounce.

The yellow metal had inched up 0.3% on Monday, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook.

Bullion under pressure on Fed rate outlook

Gold prices had hit a one-month low on Wednesday, as the Fed meeting indicated that rates will remain higher for a longer period after Wednesday’s cut. 

Prices have failed to fully recover from it and have seen subdued moves as investors still assessed the implications of the Fed’s rate outlook. 

Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds.

Traders are now expecting only two quarter-point reductions in 2025 amid continued economic resilience and still-elevated inflation. This compares to expectations of four rate cuts before the Fed meeting.

Strong dollar creates downward pressure on gold, other metals

The Fed’s hawkish shift provided renewed strength to the U.S. dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.

The  rose 0.1% in Asia hours on Tuesday and hovered near a two-year high it reached last week.

A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.

Other precious metals were largely muted. inched up 1.2% to $960.15 an ounce, while gained 0.3% to $30.265 an ounce.

Copper subdued on strong dollar, seasonal factors

Among industrial metals, copper prices were subdued and moved within tight ranges on Tuesday as a strong greenback weighed on the red metal.

Analysts attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.

Benchmark on the London Metal Exchange were largely unchanged at $8,954.50 a ton, while one-month were 0.5% higher at $4.1045 a pound.