PRECIOUS-Gold edges up on soft inflation print, US CPI in focus

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U.S. PPI rose 3.3% on an annual basis in December

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U.S. CPI data due on Wednesday

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Gold to be in demand as a diversifier, UBS says

(Updates with mid-session trading)

By Anjana Anil

Jan 14 (Reuters) - Gold prices extended gains on Tuesday after U.S. inflation data came in slightly weaker than expected, giving investors faint hope that the Federal Reserve would continue on its rate-easing path this year, sending the dollar lower.

Spot gold gained 0.3% to $2,668.91 per ounce as of 12:10 a.m. ET (1710 GMT).

U.S. gold futures rose 0.1% to $2,682.20.

Data showed Producer Price Index (PPI) rose 3.3% on an annual basis in December, versus the 3.4% rise expected by economists polled by Reuters.

"The cooler PPI data stumped the U.S. dollar index and that helped out the precious metals market bulls, as lower inflation means the Fed may be able to lower interest rates sooner," said Jim Wyckoff, a senior market analyst at Kitco Metals.

The dollar index fell, making gold cheaper for overseas buyers.

Investors now await the Consumer Price Index (CPI) on Wednesday to analyze the Fed's policy path. A Reuters poll forecast an annual rise of 2.9%, versus November's 2.7%, and a monthly increase of 0.3%.

"We're going to need to see continued progress on inflation in order to bring back those interest rate cut expectations," said Phillip Streible, chief market strategist at Blue Line Futures.

Traders currently see the Fed delivering 29.4 basis points worth of rate cuts by year-end, data compiled by LSEG shows.

Bullion is considered a hedge against inflation, but higher rates dull the appeal of the non-yielding asset.

U.S. President-elect Donald Trump will return to the White House on Jan. 20 and has vowed to impose trade tariffs. Analysts expect these to trigger trade wars and reignite inflation.

UBS noted that a stronger dollar and elevated U.S. yields will likely remain headwinds in the first half of this year for gold but should be more than offset by demand for the metal as a diversifier.

Spot silver added 0.6% to $29.77 per ounce, platinum lost 1.8% to $936.55, and palladium shed 0.3% to $935.50. (Reporting by Anjana Anil in Bengaluru; Editing by Alexander Smith and Mohammed Safi Shamsi)