Gold prices edged up from two-month lows on Friday, helped by a dip in the U.S. dollar as traders assessed the progress of U.S. debt ceiling negotiations and the Federal Reserve's rate hike path.
Spot gold rose 0.7% to $1,953.49 per ounce by 1142 GMT, while U.S. gold futures gained 0.5% to $1,952.80.
"Today's moderating U.S. dollar has carved out some breathing space for bullion," said Han Tan, chief market analyst at Exinity.
"The precious metal's upside remains capped by the imminent prospects of a U.S. debt deal, coupled with the fact that markets have more room before fully pricing in yet another Fed rate hike by July."
Bullion earlier slipped to its lowest since March 22 at $1,936.59 and is down 1.2% so far this week, on course for a third straight weekly fall. The dollar eased but remained on track for a third straight weekly gain.
U.S. President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal, a U.S. official told Reuters.
Investors are waiting for U.S. personal consumption expenditure (PCE) data, often referred to as the Fed's favoured inflation gauge, at 1230 GMT for more guidance on interest rates.
Markets are pricing in a 40.9% chance of a 25-basis-point interest rate hike in June, while 59.1% expect the Fed to stay pat on rates, according Fed fund futures.
While some of the bullish sentiment in gold has faded, there's a chance it could return, said Craig Erlam, senior market analyst at OANDA.
"We need supportive data as until now, it's fallen short of what is needed to bring the end of the tightening cycle and open the door to rate cuts this year."
Spot silver rose 1.9% to $23.20 per ounce but was on track for a third consecutive weekly dip.
Platinum gained 1.1% to $1,031.62 while palladium jumped 2.3% to $1,449.58.
(Reporting by Seher Dareen in Bengaluru Editing by Mark Potter, Kirsten Donovan)