Gold prices edged higher yesterday as the dollar eased, while investors positioned themselves ahead of key U.S. inflation data and the Federal Reserve's policy meeting due next week.

Spot gold was up 0.2 per cent at $1,789.42 per ounce, after rising more than 1 per cent on Wednesday.

U.S. gold futures settled 0.2 per cent higher at $1,801.50.

The dollar index slipped 0.3 per cent against its rivals, making gold less expensive for other currency holders.

"We're just waiting for some fresh fundamental inputs," Jim Wyckoff, senior analyst at Kitco Metals said, adding that gold prices are likely to be in "choppy and sideways" trade leading up to the Fed's policy meeting next week.

Investors are keeping a close eye on the Fed policy decision due on December 14, with market participants largely pricing in a 50-basis-point (bps) rate hike. November's consumer price data due on December 13 will also be closely watched.

"What traders are going to watch is not only whether the Fed raises (interest rates) by half a point or three-quarters of a point, but also the tenor of their rhetoric on the pace of future rate hikes," Wyckoff said.

However, recent strong U.S. economic data has led to fears that the Fed may lift interest rates more than recently projected.

"The jobs report was a setback and one that could stand in the way of another break higher before the Fed meeting," Craig Erlam, senior market analyst at OANDA said in a note.

Interest rate hikes to fight soaring inflation tend to raise the opportunity cost of holding non-yielding gold.

The World Gold Council (WGC) said global gold ETFs (exchange traded funds) holdings fell for a seventh straight month in November, although outflows slowed to a modest 34 tons worth $1.8 billion.

Spot silver added 1.5 per cent to $23.07 per ounce, platinum rose 0.2 per cent to $1,004.22 and palladium climbed 4.6 per cent to $1,929.98.