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 Gold prices eased on Wednesday, set for a monthly drop, as progress in the U.S. debt ceiling deal and expectations that the Federal Reserve will likely raise interest rates further eroded bullion's safe-haven status.

Legislation brokered by U.S. President Joe Biden and House Speaker Kevin McCarthy to lift the $31.4 trillion debt ceiling and achieve new federal spending cuts passed an important hurdle, advancing to the full House of Representatives for debate and an expected vote on passage on Wednesday.

Spot gold fell 0.2% to $1,955.28 per ounce by 0243 GMT, and lost 1.7% so far this month. U.S. gold futures eased 0.2% to $1,954.80.

An overnight decline in Treasury yields have allowed gold prices to defend its support confluence zone at the $1,940 level for now, but intermittent bounces since early-May have been short-lived, which raises the chances that it could be the same this time round as well, said Yeap Jun Rong, a market analyst at IG.

Gold prices have come off their recent near-record highs reached early in May.

The dollar index held firm, offsetting support from a decline in the benchmark U.S. 10-year Treasury yield. A stronger dollar makes gold more expensive for overseas buyers.

Fed funds futures traders now see the Fed as more likely to hike interest rates next month than leave them unchanged, as economic data beats expectations and lawmakers appear to have reached a deal to raise the debt ceiling.

Higher interest rates dull the appeal for zero-yield bullion.

A hawkish build in rate expectations has translated to some resilience in place, and until that reverses, upside for gold prices may continue to remain capped, Jun Rong added.

Spot silver fell 0.4% to $23.11, platinum shed 0.5% to $1,008.92, while palladium rose 0.19% to $1,403.30 per ounce. All contracts were set for a monthly loss.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber and Sherry Jacob-Phillips)