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Gold prices rose on Tuesday as the dollar slipped, but the metal languished near a 2-1/2-year low on prospects of further rate hikes by the U.S. Federal Reserve to tame soaring inflation.

Spot gold was up 0.4% at $1,628.78 per ounce, as of 0315 GMT, after hitting its lowest since April 2020 at $1,620.20 on Monday. U.S. gold futures edged 0.2% higher to $1,636.30.

The dollar index dipped 0.1%, easing off a two-decade peak hit in the previous session. The benchmark 10-year Treasury yield was also slightly off a 12-year peak marked on Monday. [USD/] [US/]

Slightly lower U.S. yields and dollar may have provided some room for gold prices to stabilise after its recent sell-off, said IG market strategist Yeap Jun Rong.

"The prevailing upside risk to inflation and, hence, monetary policy tightening, still remains a key obstacle limiting gold's upside," he said.

Fed officials on Monday sloughed off rising volatility in global markets and said their priority remained controlling inflation.

Gold prices have declined more than 20% since rising above the key $2,000 level in March, as rapid U.S. rate hikes made the non-yielding bullion less attractive and also pushed the dollar to multi-year highs.

"Its (gold's) status as a haven asset in times of economic distress has failed to stem the flow of selling," analysts at ANZ said in a note.

Indicative of investor sentiment, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 30,333,443 ounces on Monday, its lowest since March 2020.

Spot silver rose 0.6% to $18.45 per ounce, platinum fell 0.2% to $850.46 and palladium inched 0.1% lower to $2,044.99.

(Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)