Gold prices rose for a third straight session on Wednesday to hit a one-week high, buoyed by a weaker dollar, while investors awaited US inflation data for clues on the pace of future US interest rate increases.

Spot gold, which is priced in dollars, was up 0.4% at $1,334.75 an ounce, as of 9.57am. Earlier in the session, it hit $1,335.81, its highest since 6 February. US gold futures rose 0.5% to $1,337.6 per ounce.

The dollar index was down 0.3% against a basket of currencies at 89.436, its lowest in a week. A retreat in the greenback helped the bullion gain over 2% from a one-month low of $1,306.81 hit last week.

“With the US dollar once again striking a bearish chord, the long gold set up looks favourable," said Stephen Innes, head of trading APAC at OANDA. “However, with nearly 100% of gold appeal trading off the back of U.S. dollar weakness, the US CPI (consumer price index) reading could be a day of reckoning for gold bulls," Innes added.

The market on Wednesday looked forward to US inflation report for the month of January, due to release later in the day, which could soothe, or incite, concerns of faster rate hikes globally.

Inflation can boost demand for safe-haven assets such as the bullion, which tends to gain in times of crisis. However, expectations that the US Federal Reserve will hike interest rates to fight inflation make the non-yielding metal less attractive.

“Recent price action is indicative of short-term positioning, with expectations of strength toward $1,335 - $1,340 as short positions are further tested," MKS PAMP Group trader Sam Laughlin said. “The caveat to a short-term push higher, however, is the upcoming Chinese New Year holiday, which will remove physical demand from the market."

Spot gold is expected to edge up into a range of $1,343-$1,352 per ounce, as suggested by a retracement analysis, according to Reuters technical analyst Wang Tao.

Meanwhile, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.36% to 823.66 tonnes on Tuesday. Holdings rose after posting their worst weekly fall since July 30.

Among other precious metals, silver rose 0.4% to $16.61 per ounce. Platinum climbed 0.6% to $979.20, while palladium gained 0.5% to $990.10 per ounce. Reuters

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