Bengaluru — Gold prices inched higher on Tuesday on safe-haven buying, but upside potential for the metal was capped by a firm dollar and expectations of further US interest rate increases.

Spot gold rose 0.1% to $1,313.54 an ounce at 3.25am GMT.

US gold futures for June delivery, however, were down 0.4% at $1,313.40 an ounce.

The rising tensions in Gaza induced some safe-haven buying for gold earlier in the session, ANZ analysts said in a note.

Israeli troops shot dead dozens of Palestinian protesters on the Gaza border on Monday, when the high-profile opening of the US embassy to Israel in Jerusalem by the Trump administration raised tension to boiling point after weeks of demonstrations.

"We’re seeing little sparks of interests on the back of these issues, but at the moment it doesn’t look significant enough to raise concerns over the medium term [that would] support a more sustained level of safe-haven buying," ANZ analyst Daniel Hynes said.

A firmer dollar and stronger US bond yields on Tuesday, after a Federal Reserve official backed the case for further US interest rate increases, were limiting gold’s potential to rise.

"The market’s been waiting for the next rate hike by the Fed … and I think gold prices are going to remain under pressure till we get through that hike," Hynes said.

The US central bank is widely expected to raise benchmark interest rates at its next policy meeting, in June.

Higher interest rates tend to boost the dollar and push bond yields up, making greenback-denominated gold more expensive for other holders and denting its nonyielding appeal.

The US yield curve could invert later this year or early in 2019, St Louis Federal Reserve James Bullard said on Monday, a scenario that has preceded recent US recessions.

Elsewhere, three European Central Bank policy makers stuck with an upbeat assessment of the euro zone economy on Monday, shrugging off signs of a slowdown in inflation and activity.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.17% to 856.17 tonnes on Monday.

Reuters technical analyst Wang Tao says spot gold could retest a support at $1,302.

In other precious metals, silver was unchanged at $16.50 an ounce.

Platinum rose 0.2% to $906.50 per ounce, while palladium was 0.1% lower at $994.50.