Gold prices edged higher on Tuesday, as investors braced for a less aggressive path of interest rate cuts from the Federal Reserve next year, in a holiday-truncated trading week.

Spot gold ticked up 0.1% to $2,616.13 per ounce, as of 0307 GMT. U.S. gold futures steadied at $2,629.80.

Trading volumes will likely thin out as the year-end approaches.

Investors are now focused on how rapidly or deeply the U.S. central bank would cut rates in 2025. The Fed continued reductions in December after a period of aggressive rate hikes but signaled fewer cuts next year.

Higher rates dull non-yielding bullion's appeal.

While a benign U.S. inflation reading on Friday eased some concerns about the pace of cuts next year, markets are still pricing in just about 35 basis points worth of easing for 2025.

The next thing the market will look for is Donald Trump's policy on trade tariffs and how the targeted trade partners react to it, said Kelvin Wong, OANDA's senior market analyst for Asia Pacific.

"I believe trade tariffs are one of the negotiation tactics and if the trading partners do not want to buy the stick or the carrot, they may retaliate with other forms of sanction against U.S. products, which could cause volatility in the market, potentially seeing gold's safe-haven demand rise."

U.S. investors are preparing for a swathe of changes in 2025 - from tariffs and deregulation to tax policy - that will ripple through markets as President-elect Donald Trump returns to the White House in January.

The bullion scaled multiple record highs this year, rising nearly 27% so far, to mark its best annual performance since 2010, driven by robust central bank buying, geopolitical tensions and monetary policy easing by major banks.

Spot silver added 0.1% to $29.68 per ounce and palladium gained 0.5% to $934.51. Platinum shed 0.1% to $938.00.

(Reporting by Rahul Paswan in Bengaluru; Editing by Sumana Nandy)