Gold prices climbed on Tuesday after Federal Reserve Chairman Jerome Powell's comments increased the likelihood of a September rate cut, while investors waited for additional US economic data to provide further insights on monetary policy.

Spot gold increased by 0.7% to $2,440.01 per ounce, nearing its May 20 record of $2,449.89.

Powell stated on Monday that the three US inflation readings in the second quarter of this year "somewhat increase confidence" that the rate of price increases is aligning with the Fed's target sustainably. Investors awaited US retail sales data, due at 12:30 GMT on Tuesday, for additional guidance.

Gold reached new heights in April and May but pulled back in June when projected US interest rate cuts were reduced, and physical demand began to decline due to high prices. Greater optimism for a September rate cut in July pushed non-yielding bullion higher again.

"Uncertainty surrounding the protracted wait for US interest rate cuts could lead to a soft third quarter for gold before a rally gathers momentum to achieve a new high," stated Nitesh Shah, commodity strategist at WisdomTree.

According to WisdomTree's models, gold was overvalued by 7% at the end of June, indicating that most of this overvaluation will likely correct in the current quarter.

Central bank purchases, a critical demand category, have slowed in recent months, primarily due to the lack of buying by China's central bank.

However, with the impending likelihood of rate cuts, exchange-traded funds (ETFs) backed by physical gold, another vital demand segment, have resumed their acquisitions after several years of declines.

Gold ETFs, which store bullion for investors, reported inflows of $0.5 billion, or 7.6 metric tons, last week, according to the World Gold Council.