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Gold eked out gains on Thursday, as the dollar extended its retreat ahead of a U.S. inflation report later in the day that could offer more clarity on the Federal Reserve's monetary policy outlook this year.

Spot gold was up 0.3% at $2,028.78 per ounce, as of 0322 GMT. U.S. gold futures also rose 0.3% to $2,033.00.

The dollar index fell 0.1%, on its second session of decline, making bullion more attractive for buyers holding other currencies.

"U.S. CPI looming, (gold) bears may be taking a cautious approach and lightening their load ahead of the event," said Matt Simpson, a senior analyst at City Index.

All eyes are on U.S. consumer price inflation (CPI) report due at 1330 GMT, followed by producer prices data on Friday.

Economists polled by Reuters see year-on-year inflation at 3.2% in December, but think core inflation likely fell to 3.8%, its lowest since mid-2021.

Traders are betting on 140 basis points (bps) of interest rate cuts by the U.S. central bank this year and a 67% chance they begin as soon as March, according to LSEG's interest rate probability app, IRPR.

"While Fed cuts seem likely, 140 bps could still be overly optimistic in my view. Core CPI is still roughly twice the Fed's target and employment data remains strong," Simpson added.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

Earlier this week, a New York Fed report said consumers expect a decline in inflation while Fed Governor Michelle Bowman stated that the U.S. central bank's monetary policy seems "sufficiently restrictive".

Spot gold may break support of $2,023 per ounce and fall into the $2,006-$2,016 range, according to Reuters technical analyst Wang Tao.

Elsewhere, silver rose 0.5% to $22.96 per ounce, and palladium gained 0.8% to $1,006.84, while platinum was steady at $919.15.