Gold edged higher on Tuesday supported by weakness in dollar. Traders and speculators enlarged positions tracking overseas markets.

Investors have also been bleak on holding gold in their portfolio due to bearish outlook for near term.

Gold sentiment has suffered this year due to anticipations that the Federal Reserve will tighten policy and hike the interest rate which will dampen the gold sentiment.

International gold rate was spotted at $1,204 an ounce. Further direction of the bullion will depend on the dollar and Fed's statement on interest rates. Increase in interest rates would dampen yellow metal sentiment as it makes dollar quoted metal expensive. However, falling oil prices may drag the gold lower.

Gold futures for February 2015 contract, at MCX, is trading at Rs. 26,603 per 10 grams, up by 0.92 per cent, after opening at Rs. 26,400, against the previous closing price of Rs 26,361. It touched an intra-day high of Rs 26,649 during the trade.

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