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 Gold prices advanced on Tuesday as the dollar's retreat amid expectations for a less-aggressive interest rate hike from the U.S. central bank made bullion a more attractive bet.

Spot gold rose 0.3% to $1,937.00 per ounce by 1249 GMT. U.S. gold futures gained 0.5% to $1,938.10.

The dollar index dipped 0.1%, making greenback-priced bullion cheaper for many buyers.

Bullion has gained about $120 since the beginning of 2023, backed by expectations that the U.S. Federal Reserve might increase rates by only 25 basis points at each of its first two meetings this year, after slowing its pace to 50 bps in December 2022.

"Policy signals from the upcoming FOMC meeting may either validate gold's recent gains or greatly disappoint bullion bulls," said Han Tan, chief market analyst at Exinity.

Some analysts also noted that a possible recession could force the U.S. central bank to loosen its monetary policy tightening.

However, "if the Fed signals its persistence with more rate hikes than markets currently forecast, that may unwind some of the precious metal's year-to-date advances and drag it back closer to the psychological $1,900 mark." [FEDWATCH]

The U.S. fourth-quarter GDP growth estimates due on Thursday could set the tone for the Jan. 31-Feb. 1 Fed policy meeting.

Although gold is considered a hedge against economic uncertainties, higher rates tend to dull zero-yielding bullion's appeal.

From a technical point of view, gold is in an upward phase with prices surpassing the former resistance zone of $1,920, said Carlo Alberto De Casa, market analyst at Kinesis.

"Moreover, the U.S. dollar is continuing to lose ground, and this is a positive catalyst for gold."

Spot silver gained 0.9% to $23.67 per ounce. Holdings in New York's iShares Silver Trust exchange-traded fund increased by 4% on Monday. [GOL/ETF]

Platinum rose 0.6% to $1,053.46 while palladium advanced 0.8% to $1,717.58.