Gold prices extended their record run on Tuesday, rising more than 1%, driven by a weaker dollar and growing investor confidence that the Federal Reserve will likely cut interest rates in September.

Spot gold rose 1.1% to $2,530.40 per ounce by 9:59 a.m. ET [1359 GMT]. U.S. gold futures gained about 1.1% to $2,569.00.

The dollar index sank to a seven-month low against its rivals, making gold more attractive for other currency holders, while the yield on the benchmark U.S. 10-year note fell 3.4 basis points from Monday.

Western investors are cautious ahead of the Jackson Hole meeting on Friday and some signs that traders in Shanghai are back on the bid in gold are supporting gold prices to new highs, said Daniel Ghali, commodity strategist at TD Securities.

Positioning in gold might be overextended, with expectations of significant Fed rate cuts possibly leading to a correction if this narrative is challenged, he added.

Traders will be closely monitoring the minutes of the Fed's July policy meeting on Wednesday and Fed Chair Jerome Powell's keynote speech at the Jackson Hole symposium at the end of the week for more cues on rate cuts.

Traders see a 73.5% chance of the Fed cutting interest rates by 25 basis points in September, according to the CME FedWatch Tool.

Gold, which tends to thrive in a low-interest-rate environment, has risen more than 20% so far this year and heading for the best year since 2020.

"Geopolitical uncertainties, the rise in speculative interest, and substantial global ETF inflows are further fueling the bullish trend in gold" said Joseph Cavatoni, market strategist at World Gold Council.

Holdings of SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, jumped to their highest in seven months at 859 tons on Monday.

Spot silver rose 1.2% to $29.84 per ounce, platinum gained 0.6% to $959.00 and palladium was up 1.5% at $945.85.

(Reporting by Anushree Mukherjee in Bengaluru; editing by Alan Barona)