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Gold prices edged up on Friday, en route to their best monthly performance since July 2020, as the recent banking system crisis led to expectations of a less-aggressive U.S. Federal Reserve, making bullion an attractive bet.

Spot gold was up 0.1% at $1,981.59 per ounce, as of 0321 GMT. U.S. gold futures rose 0.1% to $1,982.00.

Bullion was also set for a second consecutive quarterly gain, up 8.6% so far.

The dollar was on track for a second consecutive quarterly loss, making bullion cheaper for overseas buyers. [USD/]

Gold rose above the $2,000 mark after the sudden collapse of two U.S. regional lenders earlier this month, which led to bets that the Fed might pause hiking rates to avoid a wider fallout from the global banking system turmoil.

Markets see a 48.9% chance of the Fed standing pat on interest rates in May.

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

But prices soon retreated after authorities stepped in with rescue measures.

"There is speculation that the banking crisis is probably not over, but the issues are not immediately visible or impacting markets right now... so gold has been consolidating between $1,930-$2,000," said Ilya Spivak, head of global macro at Tastylive.

Moreover, three Fed officials kept the door open to more rate hikes, with two noting banking sector problems could generate enough headwinds to help cool price pressures faster than expected.

Gold faces a downside risk because the market expects the Fed to pause raising rates, which clashes with what the Fed has said and might clash with the upcoming data, Spivak added.

The Personal Consumption Expenditures data is awaited for further clues on the U.S. central bank's next move.

Spot silver was flat at $23.87 per ounce, platinum was also listless at $986.12, while palladium fell 0.5% to $1,457.39.

"Supply disruptions in South Africa and investment demand should see platinum prices rising above $1,000/oz," ANZ said in a note.