* US and Iran exchange fire for a second straight day

* Traders see 67% chance of US rate hike in December

* May U.S. producer price index data due at 1230 GMT

(Rewrites for Europe morning session)

By Noel John

June 11 (Reuters) - Gold prices rose on Thursday, rebounding

from a six-month low, as investors covered their short

positions, though concerns around higher inflation and U.S.

interest rates capped gains.

Spot gold rose 0.6% to $4,097.01 per ounce at 0836

GMT after hitting its lowest point since November 21 earlier in

the session.

U.S. gold futures for August delivery were down 0.4%

at $4,118.

"Gold is clearly significantly oversold just now and it

remains to be seen whether this is a recovery as such or simply

short positions taking profit," independent analyst Ross Norman

said.

On the geopolitical front, the U.S. and Iran traded attacks

for a second straight day, with President Donald Trump vowing

further strikes if Tehran does not immediately agree to a peace

deal.

Spot gold has dropped more than 22% since the U.S.-Israeli

war on Iran kicked off in late February, which was followed by a

jump in oil prices.

Elevated crude oil prices can accelerate inflation and keep

interest rates higher for longer. While gold is viewed as a

hedge against inflation, higher interest rates tend to weigh on

the metal.

Data on Wednesday showed U.S. consumer inflation increased

at its fastest pace in three years in May, boosted by surging

prices for energy-related products.

The Federal Reserve is expected to hold rates steady in

Kevin Warsh's first meeting as Fed chair next week, with a

majority of economists in a Reuters poll expecting interest

rates to remain unchanged this year.

However, traders are currently pricing a 67% chance of a

U.S. rate hike in December, according to the CME Group's

FedWatch tool.

"The market now firmly expects the Fed to raise interest

rates before the end of the year," Commerzbank analyst Carsten

Fritsch said. "If next week's meeting does not signal an

upcoming increase in interest rates, the price of gold could

start to recover."

Investors now await the May producer price index reading due

at 1230 GMT to gauge the Fed's monetary policy stance.

Spot silver rose 1.3% to $64.49 per ounce, platinum

gained 0.8% to $1,678.08 and palladium climbed 3%

to $1,249.58.