On Tuesday, gold prices increased as the dollar plummeted due to speculation that the Federal Reserve may halt its rate hike cycle by as early as June, extending a rebound into a third straight session.

A rise in betting for a Fed pause caused the greenback to lose 0.2% of its value and drop to a two-week low. Some market participants were even planning for a rate cut later this year.

Given that rising interest rates increase the opportunity cost of storing non-yielding assets like bullion, this scenario is positive for gold. The Fed's change of direction is also anticipated to be influenced by deteriorating economic conditions, which will strengthen the yellow metal's appeal as a safe haven.

Spot gold edged up 0.3% to $1,995.57 per ounce, while gold futures added 0.3% to $2,006.35 per ounce. The two instruments were gearing towards the third day of gains in a row.

Fed Fund futures prices indicate that markets are pricing in an over 60% possibility of a mid-year pause in rate hikes, even though the Fed is still projected to raise rates by another 25 basis points when it meets next week.