[BENGALURU] Gold prices edged higher on Tuesday buoyed by a weaker US dollar, but the metal traded in a narrow range as caution set in ahead of the US Federal Reserve's two-day monetary policy meeting.

Spot gold was up 0.1 per cent at US$1,696.06 per ounce by 0442 GMT. US gold futures eased 0.3 per cent to US$1,700.60.

"Given the enthusiasm for risk and growth exposed assets, we could see pressure come to gold during the session, but on the other hand the weaker US dollar is supportive," said Michael McCarthy, chief strategist at CMC Markets.

The US dollar hovered near a three-month low, making gold cheaper for holders of other currencies.

Investors' focus is now on the US central bank's two-day monetary policy meeting, starting later in the day, for any forward guidance as economy gradually starts showing signs of recovery.

Traders stopped pricing for the possibility of negative rates in the US, following a surprisingly strong employment report last Friday.

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Limiting gold's advance, market participants favoured riskier assets as confidence in an economic recovery pushed the Nasdaq benchmark to a record high. Asian stocks were also set to climb.

"The yellow metal is on a reasonably steady downtrend, most likely on the back of the great run in equity markets over the past few weeks, which could see fast money continue to sell on rallies," said Stephen Innes, chief market strategist at financial services firm AxiCorp, in a note.

Meanwhile, the World Health Organization on Monday warned that the Covid-19 pandemic is "far from over", as a record number of new daily infections were reported.

Among other precious metals, silver dropped 1.8 per cent to US$17.54 an ounce, palladium fell 0.4 per cent to US$2,015.40, and platinum eased 0.3 per cent to US$830.37.

REUTERS