May 10 (Reuters) - Gold prices edged lower on Wednesday as optimism over the Federal Reserve cutting interest rates this year faded after U.S. inflation report, triggering profit-taking among some investors.
Spot gold was down 0.2% at $2,030.70 per ounce by 2:06 p.m. EDT (1806 GMT).
U.S. gold futures settled 0.3% lower at $2,037.10.
"There's still risks the Fed will have to keep rates higher for longer... Gold is going to need more rate cuts to become aggressively priced in for it to continue its rally," said Edward Moya, senior market analyst at OANDA.
Gold rose as much as 0.7% after data showed U.S. Consumer Price Index (CPI) rose 4.9% in April from a year earlier but lower than expectations of a 5% increase, before turning negative. Month-over-month CPI in April rose 0.4% after gaining 0.1% in March.
The data disrupted the modest momentum that had been building for an 11th straight interest rate hike in June, with the bulk of futures tied to the Fed's rate betting on a pause.
But gold may struggle in the short term with core inflation unchanged from last month and well above the Fed's target, said Ole Hansen, head of commodity strategy at Saxo Bank.
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 a potential U.S. debt ceiling default.
"Much more attention should be given to the state of the banking system and the brinkmanship in the debt ceiling talks," said StoneX analyst Rhona O'Connell.
Markets now look forward to April's producer price index (PPI) due at 8:30 a.m. EDT on Thursday for more cues.
Spot silver fell 1% to $25.35 per ounce, platinum rose 0.4% to $1,109.60 and palladium gained 2.1% to $1,602.7.