Gold gains on prospects of Fed rate cuts next year

Gold prices inched higher in holiday-thinned trade on Tuesday, helped by a weaker U.S. dollar and lower bond yields on rising prospects of interest rate cuts by the Federal Reserve as early as March next year.

FUNDAMENTALS
* Spot gold was up 0.2% at $2,056.80 per ounce, as of 0118 GMT.

* U.S. gold futures were steady at $2,068.60 per ounce.

* The dollar index fell 0.1%, making gold more attractive for other currency holders, while benchmark U.S. 10-year bond yields edged lower to 3.8913%.

* Data on Friday showed that U.S. prices fell in November for the first time in more than 3-1/2 years, pushing the annual increase in inflation further below 3%, and boosting financial market expectations for an interest rate cut from the Federal Reserve next March.

* Traders are now pricing in an 88% chance for a rate cut by the U.S. central bank in March, according to the CME FedWatch tool.

* Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

* Meanwhile, data out on Tuesday showed that Japan's jobless rate was unchanged at 2.5% in November from the previous month, while business-to-business service inflation was steady at 2.3% last month.

* Spot silver rose 0.3% to $24.23 per ounce, while platinum was steady at $970.63. Palladium climbed 0.8% to $1,212.34.

* Markets in Australia, New Zealand, Hong Kong and Euro Zone are closed on Tuesday for the Boxing Day public holiday.