Gold prices marked a record high on Tuesday, as investors flocked to the safe-haven asset amid a record-breaking rally driven by expectations that the Federal Reserve will deliver an interest rate cut next month.

Spot gold was up 0.7% at $2,522.17 per ounce, as of 0907 GMT, surpassing a previous record hit on Friday. U.S. gold futures gained 0.8% to $2,561.10.

Gold traders are refocusing on the prospect of lower U.S. interest rates, attracting Western safe-haven seekers back to the market, as shown by inflows into physically backed products, said Carsten Menke, an analyst at Julius Baer.

"Considering the weakness of the Chinese economy and the geopolitical tensions involving China, we believe there is a very high likelihood that sooner or later, buying will resume. We currently have a 12-month price target of $2,600 per ounce."

Gold prices have rallied more than 20% so far this year on optimism that the Fed will begin cutting interest rates in September, robust central bank-buying and safe-haven demand stemming from the Middle East tensions.

Non-yielding bullion's appeal tends to shine in a low interest rate environment. The Fed is expected to cut rates by 25 basis points at each of the three remaining meetings of 2024, with a slim majority of economists in a Reuters poll dismissing recession concerns.

"A cut will be dependent on whether incoming economic data continues to support the recent softness seen in key economic measures," said Ole Hansen, head of commodity strategy at Saxo Bank.

Traders will closely monitor the minutes of the Fed's July policy meeting on Wednesday and Chair Jerome Powell's speech at the Jackson Hole symposium on Friday for further hints.

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

Among other metals, spot silver rose 0.7% to $29.67 per ounce, platinum gained 1.3% to $965.60 and palladium was up 0.5% at $936.03.

(Reporting by Daksh Grover and Sherin Elizabeth Varghese in Bengaluru; additional reporting by Swati Verma; Editing by Rashmi Aich, Subhranshu Sahu and Sherry Jacob-Phillips)