Gold prices rose more than 1% Thursday, extending previous session's sharp rise, as a drop in the dollar and an escalating trade war between the U.S. and China drove investors towards the safe-haven allure of the precious metal.

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Spot gold was up 1.6% at $3,132.29 an ounce at 09:29 a.m. ET (1329 GMT), after rising more than 3% on Wednesday. U.S. gold futures climbed 2.3% to $3,150.20.

U.S. President Donald Trump said on Wednesday he would temporarily lower hefty duties on dozens of countries, but ramped up the tariff on China to 125% from 104%.

"Gold regains its safe-haven appeal and gets back on track for new all-time highs," said Nikos Tzabouras, Senior Market Analyst at Tradu.com.

"However, prospects of deals with trading partners pose a significant risk to gold's upside potential, as they could renew pressure on the metal. Additionally, headwinds may arise from pared-back Fed rate cut bets that can strengthen the dollar."

The dollar index, meanwhile, slipped more than 1% against its rivals, making gold less expensive for other currency holders.

Data on Thursday showed U.S. consumer prices unexpectedly fell in March, but inflation risks are tilted to the upside after Trump doubled down on China tariffs.

Following the data, traders bet the U.S. Federal Reserve will resume cutting interest rates in June and probably reduce its policy rate by a full percentage point by the end of the year.

"We see central banks buying (gold), so as long as we see inflows into ETFs and more of the monetary policy risks, there's a lot of key drivers that will continue to support gold," said Alex Ebkarian, chief operating officer at Allegiance Gold.

Spot silver fell 0.4% to $30.91 an ounce, platinum eased 0.1% to $936.12, and palladium slipped 2% to $912.52.