PRECIOUS-Gold inches higher as investors focus on US inflation data

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US CPI data due at 1330 GMT

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Spot gold may fall towards $2,635 - technicals

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Donald Trump to begin his second term next week

(Updates with mid-session trading)

By Rahul Paswan

Jan 15 (Reuters) - Gold prices edged higher on Wednesday as investors waited for the U.S. consumer price inflation report that could provide more clarity on the Federal Reserve's interest rate trajectory.

Spot gold rose 0.1% to $2,681.34 per ounce by 0701 GMT. U.S. gold futures gained 0.5% to $2,696.10.

"If the CPI data comes higher, that might send gold lower because that kind of solidifies the view that the Fed more likely will be normalising last year's dovish policy in 2025," said Kelvin Wong, OANDA's senior market analyst for Asia Pacific.

The December data, due at 1330 GMT, will be closely watched by market participants after last week's blowout jobs report underlined the strength of the U.S. economy and led traders to heavily pare back bets of further Fed easing.

A Reuters poll forecast an annual rise of 2.9% versus 2.7% in November and a monthly increase of 0.3%.

Data on Tuesday showed U.S. producer prices increased moderately in December, but that is unlikely to change views that the Fed would not cut interest rates again before the second half of this year amid labour market resilience.

Traders have fully priced in a pause in rate cut at the Fed's January policy meeting.

With President-elect Donald Trump set to begin his second term next week, the focus remains on his policies that analysts expect would fuel inflation.

Non-yielding bullion is used as a hedge against inflation, although higher interest rates diminish its appeal.

"If gold prices were to dip further to break out of the November range down below $2,600, the next key level will be around $2,540 and I believe that could be an attractive level for long-term holders to consider," Wong said.

According to Reuters technical analyst Wang Tao, spot gold may fall towards $2,635.

Spot silver added 0.1% to $29.92 per ounce. Palladium dropped 0.4% to $935.25 and platinum shed 0.2% to $933.70.

(Reporting by Rahul Paswan in Bengaluru; Editing by Sumana Nandy and Subhranshu Sahu)