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Gold prices climbed over 2% on Tuesday to their highest levels in more than five months after data showing a smaller-than-expected rise in U.S. consumer prices cemented bets for a slowdown in rate hikes from the Federal Reserve.

Spot gold was up 2.1% at $1,817.64 per ounce by 1436 GMT, hitting its highest since June 30. U.S. gold futures advanced 2.2% to $1,830.90.

"Gold and silver are up significantly on safe-haven bid and also the outlook that rate hikes may be slowing," said Bob Haberkorn, senior market strategist at RJO Futures.

The inflation print "signals to the market that the interest rate hikes that the Fed's been doing are working and they might not need to be as aggressive this week or in the coming months," he added.

U.S consumer prices barely rose in November amid a drop in the cost of gasoline and used cars, leading to the smallest annual increase in inflation in nearly a year.

Following the release of the CPI data, the dollar index dropped more than 1% to a nearly six-month low, making gold less expensive for other currency holders. Benchmark U.S. Treasury 10-year note yields also slipped. [US/] [USD/]

Fed funds futures prices now imply a better-than-ever chance that the Fed will follow its expected half-point interest rate hike this week with a smaller 25-basis-point rate hike in February.

The U.S. central bank is set to issue its policy statement at 2 p.m. EST (1900 GMT) on Wednesday, followed by a press conference from Fed Chair Jerome Powell.

The Bank of England and the European Central Bank will also meet this week, and each is expected to deliver a 50 bps rate hike.

Lower rates tend to be beneficial for bullion as it decreases the opportunity cost of holding the non-yielding asset.

Spot silver rose 2.5% to $23.87 per ounce, platinum was up 4.1% at $1,042.25 and palladium gained 4.3% to $1,969.25.