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Gold prices reversed course to gain on Wednesday as the dollar retreated after U.S. inflation readings came in mostly as expected, reinforcing expectations for a pause in the Federal Reserve's interest rate hikes.

The U.S. dollar and Treasury yields fell after the Labor Department reported that the consumer price index (CPI) rose 0.4% last month, in line with estimates. [USD/] [US/]

However, underlying inflation remained strong. In the 12 months through April, the CPI increased 4.9% after advancing 5.0% on a year-on-year basis in March.

Spot gold was up 0.6% to $2,046.76 per ounce by 8:55 a.m. EDT (1255 GMT), while U.S. gold futures gained 0.6% to $2,054.10.

"The gold market bulls breathed a sigh of relief since the numbers did not come in hotter and that's why we're seeing the market rally," said Jim Wyckoff, senior analyst at Kitco Metals.

"It falls into the camp of the monetary policy doves who want to see the Federal Reserve stop raising interest rates sooner rather than later."

The case for the U.S. central bank to end its rate hiking campaign got a little stronger after the report.

While gold is considered a hedge against inflation, rising interest rates dull non-yielding bullion's appeal.

Some analysts have said gold could attempt another run to record highs, given persistent economic worries, including U.S. debt ceiling jitters.

Concerns about a potential U.S. debt ceiling default are keeping investors from taking on higher risk, and so gold remains well supported at this time down to $1,970, while resistance may arise around $2,066-$2,076, said Daniela Hathorn, a senior market analyst at Capital.com.

Elsewhere, spot silver rose 0.8% to $25.81 per ounce, while platinum added 1.7% to $1,122.79.

Palladium gained 2.6% to $1,611.32.