Gold hit a new record, with traders weighing China's plan to become a custodian of foreign gold reserves in an effort to strengthen its position in the global bullion market.

The People's Bank of China (PBOC) is using the Shanghai Gold Exchange to persuade central banks in friendly countries to buy bullion and store it domestically, according to sources familiar with the matter. The Asian nation is the world's largest producer and consumer of the precious metal, and a larger role in the global bullion market could mean easing import restrictions, or a broader role for gold in the financial services sector.

Gold rose to $3,791.10 an ounce on Tuesday, its third consecutive trading day hitting an all-time high.

Investors have been piling into exchange-traded funds—with holdings increasing at the fastest pace in more than three years on Friday—as expectations for further interest rate cuts this year grow. After retreating the day after the Fed's 25 basis point rate cut, upward momentum has taken root, with ETF inflows still a driving force, BMO Capital Markets analysts, including Helen Amos and George Heppel, said in a note on Monday. "With the rate-cutting cycle firmly in place, we believe the risk-reward environment remains positive for prices through" the fourth quarter.

Meanwhile, traders are awaiting a speech from Federal Reserve Chairman Jerome Powell for fresh insights into the central bank's monetary policy path. Powell is scheduled to deliver a highly anticipated speech on the economic outlook later Tuesday, after the quarterly interest rate forecasts accompanying last week's rate decision—known as the dot plot—showed a wide dispersion in views.

Before his speech, Fed Governor Michelle Bowman said officials need to act decisively to lower interest rates as the labor market weakens. Fed Bank of Chicago President Austan Goolsbee told CNBC that the U.S. central bank must be cautious given that inflation is on an upward trajectory. Several Fed officials on Monday reiterated the need for a cautious approach to interest rate decisions going forward.

Gold and silver have been among the best-performing major commodities this year due to a broad confluence of supporting factors, as the Fed eased monetary policy, central banks increased their reserve holdings, and lingering geopolitical tensions kept safe-haven assets in demand. Banks including Goldman Sachs Group Inc. have raised expectations for further gains.

Spot gold rose 0.7% to $3,772.83 an ounce as of 10:46 a.m. in New York. The Bloomberg Dollar Spot Index was steady. Silver rose 0.5%, while platinum and palladium surged. (alg)

Source: Bloomberg