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Gold prices crept up on Wednesday, hovering near their highest in almost three weeks, on market expectations the Federal Reserve will start cutting interest rates in the first quarter of 2024.

Spot gold was up nearly 0.1% at $2,068.59 per ounce, as of 0934 GMT, and was on track to mark an over 13% gain this year - its best since 2020.

U.S. gold futures rose 0.5% to $2,079.90 per ounce.

"There are a lot of ifs and buts, permutations and combinations, but the fact remains that no matter what, the Fed's not going to hike the rates again... it's the base case scenario (for gold)," said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai.

"Raising rates is out of question as per us and with things improving gradually, market is starting to price in rate cuts."

A report from the U.S. Commerce Department on Friday showed underlying inflation pressures continuing to subside.

The cooler U.S. inflation data ascertained analyst expectations of a rate cut by the Fed in March, with traders now pricing in about an 80% chance, according to the CME FedWatch tool.

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

Helping bullion prices, the dollar index was holding near a 5-month low, and eyed its worst yearly slide since 2020, down about 2% for the year so far [USD/]

A weaker dollar makes gold more attractive for other currency holders.

Spot silver fell 0.4% to $24.09 per ounce, and was poised for a marginal gain of about 0.5% over the year.

Platinum rose 0.2% to $980.18. Palladium rose 1.5% to $1,192.12. Both were on track to log yearly decline, with palladium shooting down around 34% so far for the year - its worst since 2008.