Gold prices edged up on Wednesday, supported by a slightly weaker U.S. dollar ahead of a critical inflation report that could offer some clues on whether the Federal Reserve will begin cutting interest rates this year.

Spot gold gained 0.2% to $2,033.90 per ounce, as of 1148 GMT. U.S. gold futures rose 0.3% to $2,040.00 per ounce.

“If the CPI figures exceed market expectations, perhaps forcing the Fed to delay its policy pivot, that could force bullion to relinquish more of its gains from the final quarter of 2023,” said Han Tan, chief market analyst at Exinity Group.

Gold gains as traders find comfort in Fed rate cut hopes

“However, further evidence of U.S. disinflation taking hold may propel spot gold closer to $2,100 in the immediate term.”

The dollar index ticked down about 0.1% against a basket of currencies, making bullion more attractive for foreign currency holders.

The focus of investors now switches to Thursday’s U.S. consumer inflation numbers, which are expected to show that headline inflation rose 0.2% in December and 3.2% year-on-year.

A New York Federal Reserve report revealed that consumers expect a decline in inflation, while Fed Governor Michelle Bowman reversed her long-held hawkish position on Monday, stating that U.S. monetary policy is now “sufficiently restrictive”.

According to the CME FedWatch Tool, the market currently expects about a 68% chance of a rate cut at the Fed’s March 19-20 policy meeting.

Lower interest rates reduce the opportunity cost of investing in non-yielding bullion.

Spot silver was steady at $22.96 per ounce.

“We are positive about industrial demand. In spite of risks of a slowdown or even a mild recession in the U.S.. We think the silver market will remain in a deficit for the foreseeable future. Although in the short term prices will be heavily dictated to by institutional trends,” said Philip Newman, managing director of Metals Focus.

Platinum was down 0.2% to $928.51, while palladium was up 1.4% to $991.85.