Gold hits 1-week high on weaker dollar ahead of U.S. data

By Eileen Soreng

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

Spot gold, which is priced in dollars, was up 0.4 percent at $1,334.75 an ounce, as of 0427 GMT. Earlier in the session, it hit $1,335.81, its highest since Feb. 6.

U.S. gold futures rose 0.5 percent to $1,337.6 per ounce.

The dollar index was down 0.3 percent against a basket of currencies at 89.436, its lowest in a week.

A retreat in the greenback helped the bullion gain over 2 percent from a one-month low of $1,306.81 hit last week.

"With the U.S. 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 percent of gold appeal trading off the back of U.S. dollar weakness, the U.S. CPI (consumer price index) reading could be a day of reckoning for gold bulls," Innes added.

The market on Wednesday looked forward to U.S. 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 U.S. 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 percent 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 percent to $16.61 per ounce. Platinum climbed 0.6 percent to $979.20, while palladium gained 0.5 percent to $990.10 per ounce.

(Reporting by Eileen Soreng in Bengaluru,; Editing by Amrutha Gayathri and Sherry Jacob-Phillips)