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Gold reversed course to trade higher on Wednesday as the U.S. dollar pulled back from session highs and expectations of a slower pace of Federal Reserve rate hikes supported prices above the $1,900 threshold.

Having dipped in the last two sessions, spot gold rose 0.5% to $1,917.26 per ounce by 1254 GMT, after hitting a session low of $1,896.32 earlier. U.S. gold futures were up 0.4% at $1,917.60.

Despite the gains on Wednesday, prices have pulled back from their highest level since April 2022, reached on Monday.

"The fact that the recent gold rally started to lose steam does not come unexpectedly as it was lacking the buy-in from investors," said Carsten Menke, head of Next Generation Research at Julius Baer.

"That said, a (correction) is unlikely to be massive because market consensus still calls for a less aggressive Fed going forward."

Investors are increasingly expecting the Fed to reduce the size of rate hikes to 25 basis points at its next meeting, after slowing its pace to 50 bps in December, following four consecutive 75 bps increases. [FEDWATCH]

As gold yields no interest, it tends to become more attractive in a low interest rate environment.

However, due to the lack of investment demand, we see gold prices on a rather soft footing, Menke said. He added that a pick up in investment demand will be crucial to the future trajectory of gold.

Making gold appealing for overseas buyers, the dollar index fell from its session highs. [USD/]

Investors are now looking towards the U.S. producer price index and retail sales data due later in the day.

"Recession worries and the Federal Reserve's policy decision would be the major catalysts for prices in the near future," said Hareesh V, head of commodity research at Geojit Financial Services.

Spot silver rose 1.2% to $24.20 per ounce while platinum climbed 1.5% to $1,054.88.

Palladium gained 0.9% to $1,759.33.