PRECIOUS-Gold hits over one-month peak on lower dollar; US inflation data in focus

By Ishaan Arora

Aug 28 (Reuters) - Gold prices rose on Thursday, hitting an over one-month high, as the dollar softened while investors hunkered down for Friday's U.S. inflation data for cues on the Federal Reserve's policy path.

Spot gold XAU= was up 0.3% at $3,407.81 per ounce at 1222 GMT, after hitting $3,408.62, its highest level since July 23, earlier in the session.

U.S. December gold futures GCcv1 rose 0.5% to $3,466.30.

The dollar index .DXY was down 0.3% against a currency basket, making gold more attractive for holders of other currencies. USD/

Investors are awaiting Friday's release of the Personal Consumption Expenditures (PCE) Price Index, which is the Fed's preferred inflation measure. Economists polled by Reuters expect the index USPCEY=ECI to rise 2.6% in July, matching the June figure.

"A surprise to the upside would likely strengthen the dollar and increase Treasury yields, weighing on gold prices," said Ricardo Evangelista, senior analyst at ActivTrades.

"The opposite outcome could fuel expectations of a more dovish Fed, softening the dollar and supporting the precious metal."

Markets expect a more than 87% chance of a 25-basis-point rate cut at the Fed's policy meeting next month, according to CME FedWatch Tool.

Non-yielding gold typically performs well in a low-interest-rate environment.

New York Fed Bank President John Williams said on Wednesday that interest rates could fall at some point, but policymakers will need to gauge upcoming data.

Traders are also watching U.S. President Donald Trump's moves to assert control over the Fed. Earlier this week, Trump said he was firing Fed Governor Lisa Cook.

"Many see the dispute as a threat to the Fed's independence and credibility, which is supportive for the precious metal," said Evangelista.

Elsewhere, spot silver XAG= was up 1.2% at $39.08 per ounce, platinum XPT= rose 0.2% to $1,349.22 and palladium XPD= climbed 1.1% to $1,103.82.