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US dollar set for monthly loss of 2.2%

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Focus on US inflation data later today

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Larger-than-expected uptick in PCE may be negative for

gold -

analyst

(Updates for EMEA session open)

By Ishaan Arora

Aug 29 (Reuters) - Gold prices edged lower on Friday,

but were set for a monthly gain ahead of U.S. inflation data

that will provide more cues on the Federal Reserve's rate cut

trajectory.

Spot gold was down 0.1% at $3,414.07 per ounce, as of

0818 GMT. Bullion has gained 3.6% in August and hit $3,423.16 on

Thursday, its highest level since July 23.

U.S. gold futures for December delivery eased 0.1%

to $3,471.70.

"Besides the dollar's slight advance, gold is also feeling

the gravitational forces typically found around big, round

numbers. Markets appear reluctant to let gold stray far from the

psychological $3,400 level ahead of PCE data," said Han Tan,

chief market analyst at Nemo.Money.

The dollar rose, but was set for a monthly drop of

2.2%. Benchmark 10-year yields were slightly above a

two-week low hit on Thursday, but were headed for a monthly

loss.

All eyes are on the Personal Consumption Expenditures (PCE)

Price Index, the Fed's preferred inflation gauge, due later in

the day.

"As long as the uptick in inflation is not worse than

feared, bullion bulls should be able to hold their ground above

$3,400. However, if the PCE prints dash market expectations for

Fed rate cuts this year, spot gold may slide back into

sub-$3,400 domain once more," Tan said.

Non-yielding gold typically performs well in a

low-interest-rate environment.

Fed Governor Waller on Thursday stepped up his call for

cutting short-term U.S. borrowing costs, saying he would support

an interest rate cut next month.

Traders expect an 85% chance of a 25-basis point rate cut at

the September policy meeting, according to the CME FedWatch

Tool.

Meanwhile, demand for physical gold in India picked up

slightly this week, despite a recovery in prices, as jewellers

stocked up ahead of the festive season.

Spot silver fell 0.4% to $38.91 per ounce, platinum

fell 1.1% to $1,343.98 and palladium was down 0.3%

to $1,099.0.