PRECIOUS-Gold set to post monthly gain; all eyes on PCE data

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 XAU= was down 0.3% at $3,407.14 per ounce, as of 1048 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 GCcv1 for December delivery fell 0.2% to $3,466.

"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 .DXY rose, but was set for a monthly drop of 2%. Benchmark 10-year yields US10YT=RR were slightly above a two-week low hit on Thursday, but were headed for a monthly loss. USD/US/

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 Christopher 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 XAG= fell 0.5% to $38.89 per ounce, platinum XPT= fell 1.1% to $1,344.74 and palladium XPD= was down 0.8% to $1,093.78.

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