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Gold prices extended gains on Wednesday, supported by a weaker U.S. dollar and bond yields after data showing slowing inflation in the U.S. bolstered the view that the Federal Reserve is done with its rate-hike campaign.

Spot gold was up 0.2% at $1,965.83 per ounce, as of 0319 GMT after rising 0.9% overnight. U.S. gold futures gained 0.2% to $1,969.50.

"The perfect world seemingly was created for gold with a very sharp decline in the dollar and a very sharp decline in yields, yet gold could not capitalise more and had a fairly modest increase," said Ilya Spivak, head of global macro at Tastylive.

"This seems to suggest that there's still some geopolitical risk element that's unwinding, and the market still seemed to be in the process of factoring out the risk that the Israel-Hamas war is going to expand to other combatants," Spivak added.

Data on Tuesday showed U.S. consumer prices were unchanged in October, and the annual rise in underlying inflation was the smallest in two years.

Softer-than-expected inflation print sent the dollar index to a more than two-month low, making gold less expensive for other currency holders. Benchmark U.S. 10-year Treasury yields slid to a near two-month low. [USD/] [US/]

U.S. rate futures on Tuesday priced in a 65% chance of a rate cut in May next year, compared with 34% late on Monday, according to the CME's FedWatch tool.

Lower U.S. interest rates raise the appeal of holding gold.

Investors now wait for U.S. retail sales data and producer price index (PPI) on Wednesday for more cues on the Fed's interest rate outlook. Economists are forecasting a 0.1% gain in PPI last month, compared with a 0.5% increase in September.

Spot silver rose 0.3% to $23.15 per ounce, while platinum was steady at $885.94. Palladium gained 0.2% to $1,018.60 per ounce.