Gold prices increased on Tuesday as the dollar retreated slightly from close to a six-month high even as strong U.S. economic data sealed the case for the U.S. Federal Reserve to increase interest rates.
U.S. services sector activity accelerated in May, pointing to robust economic growth in the second quarter. Other data showed job openings rising to a record high in April, far outpacing hiring.
The Institute for Supply Management's non-manufacturing activity index jumped 1.8 points to 58.6, ending three straight monthly declines. The reading indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.
Strong growth and tightening labor market conditions should guarantee that the Fed will hike interest rates next week, and boosts chances for two more hikes later in the year.
Still, the U.S. dollar, in which gold is priced, declined against a basket of currencies, making gold more attractive to investors.
"The dollar could not find support from the data because it had been in a strong uptrend recently in anticipation of improving data and speculators are taking profit on those long dollar positions ahead of the Fed meeting next week," said Forex.com's Fawad Razaqzada. "What really matters is how (the data) will impact the thinking and action of the Fed. Most people are therefore waiting to hear from the central bank itself with the decision now in just over a week."