Investing.com - Gold futures were higher in European trade on Tuesday, adding to modest overnight gains, as investors looked ahead to key U.S. inflation data due later in the session to gauge if the world's largest economy is strong enough to withstand further rate hikes in 2016.
The Commerce Department will publish April inflation figures at 12:30GMT, or 8:30AM ET, Tuesday. Market analysts expect consumer prices to inch up 0.3%, while core inflation is forecast to increase 0.2%.
On a yearly base, core CPI is projected to climb 2.1%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.
Rising inflation would be a catalyst to push the Fed toward raising interest rates.
Besides inflation, the U.S. is to produce reports on housing starts and building permits at 12:30GMT, or 8:30AM ET, while industrial production and capacity utilization are due at 13:15GMT, or 9:15AM ET.
There are also several Fed speakers including San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart, who appear on a panel at 16:00GMT, or 12:00PM ET. Dallas Fed President Rob Kaplan speaks at 17:15GMT, or 1:15PM ET, at a community forum.
Gold for June delivery on the Comex division of the New York Mercantile Exchange inched up $3.40, or 0.27%, to trade at 1,277.45 a troy ounce by 06:49GMT, or 02:49AM ET.
A day earlier, gold rallied to a one-week high of $1,290.40 as traders reassessed their expectations for the timing of the next U.S. rate hike following the release of weaker than expected U.S. manufacturing data.
But gold gave back gains towards the end of the session as a rally in oil prices boosted U.S. stocks, dampening the safe-haven appeal of the precious metal.
Prices of the yellow metal are up nearly 19% so far this year amid indications the Federal Reserve will take a slow and cautious approach to raising interest rates this year.
Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
Elsewhere on the Comex, silver futures for July delivery climbed 10.6 cents, or 0.62%, to trade at $17.26 a troy ounce during morning hours in London, while copper futures tacked on 1.9 cents, or 0.91%, to $2.108 a pound.
The U.S. dollar index, which tracks the greenback against a basket of six rivals, edged down 0.1% to 94.41, moving away from a three-week high of 94.84 hit on Friday.
A weaker dollar boosts demand for raw materials as an alternative investment and makes dollar-priced commodities cheaper for holders of other currencies.