(Reuters) Gold prices edged lower on Tuesday as traders assessed the likely path of the Federal Reserve's monetary policy after data showed a slump in U.S. manufacturing activity and as OPEC+'s production cut sparked inflationary risks.
Spot gold was down 0.2% at $1,980.39 per ounce, as of 0314 GMT. U.S. gold futures dipped 0.1% to $1,997.70.
The dollar index was slightly higher, making bullion expensive for overseas buyers.
Gold in the near term could see "consolidative price action in absence of a fresh catalyst and as markets monitor the extent of price gains in oil as that may throw a curve ball on inflation outlook and complicate monetary policy decision," said OCBC FX strategist Christopher Wong.
Oil prices steadied with investors' attention shifting to demand trends and the impact of higher prices on the global economy.
Gold prices dropped on Monday after a surprise cut in OPEC+ crude production was announced over the weekend. But prices reversed course to rally by 1% as the dollar stumbled following the release of weak U.S. economic data.
U.S. manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged. Analysts said activity could decline further due to tighter credit conditions.
Bullion is seen as a hedge against inflation, but higher rates increase the opportunity cost of holding the non-yielding asset.
Markets see a 60.1% chance of the U.S. Fed hiking rates by a quarter point in May. But the likelihood of a rate cut later this year also rose.
"Over the short-term (Q2), we expect gold to be further supported by a scenario where both inflation and interest rates could peak," Edward Meir, a metals analyst at Marex, wrote in a note.
"If we are right, this should send the dollar lower and clear the 'runway' for an additional move higher."
Spot silver slipped 0.5% to $23.88 per ounce, platinum eased 0.1% to $984.99 and palladium ticked 0.1% lower to $1,458.42.