Gold prices rose to a one-week high on Wednesday as a softening dollar supported buying in the yellow metal.

Gold futures for August delivery on the Comex division of the New York Mercantile Exchange gained 0.44% to $1,259.00 a troy ounce by 1:30AM ET (05:30 GMT). 

The U.S. Dollar Index, which tracks the greenback against a basket of six major currencies, stood at 94.536 on Tuesday, down 0.1%.

Dollar-denominated assets such as gold are sensitive to moves in the dollar – A fall in the dollar makes gold less expensive for holders of foreign currency and thus, increases demand for the precious metal. 

Trade concerns remained in focus as traders await the July 6 deadline when the U.S. trade tariffs on $34 billion in Chinese goods are due to take effect. In response, China has announced that it would retaliate with duties on the same value of U.S. products.

"Gold now has the potential to move back up to the $1,300 level, given market expectations appear to be becoming less hawkish on the interest rate outlook," said Alasdair Macleod, head of research with Toronto-based Goldmoney Inc.

Trading activity is expected to be light however, as the U.S. markets are closed on Wednesday for the Independence Day holiday.

"Today, there's very little happening ahead of the fourth of July holiday, but we are seeing some significant U.S. dollar weakness come across the board against other currencies," a Sydney-based trader said.