By Deep Kaushik Vakil and Seher Dareen
(Reuters) - Gold jumped on Wednesday as signs of cooling inflation bolstered bets that a pause in U.S. rate increases was imminent, although traders positioned for one more hike in May with minutes from the Federal Reserve's March meeting also in focus.
Spot gold was up 0.5% at $2,012.42 per ounce by 10:25 a.m. EDT (1425 GMT), after rising as much as 1.3% earlier. U.S. gold futures rose 0.4% to $2,027.50.
The Consumer Price Index (CPI) climbed 0.1% in March after advancing 0.4% in February, compared with a forecast of 0.2% gain in a Reuters poll. But in the 12 months through March, the core CPI gained 5.6%, after rising 5.5% on the same basis in February.
"The risks of not raising rates enough far exceeds over-tightening so the Fed is probably going to go forward with the quarter-point rate hike, the core justifies it," said Edward Moya, senior market analyst at OANDA.
"There's still a tremendous amount of risk on the table, so gold should still see some strong flows headed its way."
Gold drew strength from a slide in the dollar and benchmark U.S. yields. [USD/][US/]
Gold rally, https://fingfx.thomsonreuters.com/gfx/mkt/mopakyqakpa/GoldRally.png
Markets are now pricing in a 67% chance of a 25-basis-point rate hike in the May meeting, followed by 2-to-1 bets of a pause in June.
While gold is seen as a hedge against inflation, higher rates to tame rising price pressures weigh on the non-yielding asset's appeal.
Traders now await the minutes of the Fed's March meeting due at 1800 GMT (2 p.m. ET).
"The Fed minutes will be closely scrutinised for key insight into how policymakers evaluated the need for higher rates despite the turmoil in the banking sector," said Lukman Otunuga, senior research analyst at FXTM.
Silver gained 0.9% at $25.29 per ounce, platinum added 2.1% at $1,015.51 and palladium rose 0.91% to $1,459.39.
(Reporting by Deep Vakil and Seher Dareen in Bengaluru; editing by Jonathan Oatis and Shilpi Majumdar)