Gold dips after U.S. inflation data, set for quarterly gain

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold prices edged lower on Friday as slightly weaker U.S. inflation and consumer spending data did little to dampen expectations of an interest rate hike in December.

Spot gold was down 0.3 percent at $1,283.61 per ounce by 2:31 p.m. EDT (1831 GMT).

Gold futures for December delivery settled down $3.90, or 0.3 percent, at $1,284.80 per ounce, 2.8 percent lower for September, yet 2.9 percent higher for the quarter.

Spot gold was on track to decline 3 percent in September, its largest monthly fall so far in 2017 and the biggest since November 2016, after the dollar strengthened.

However, it was set to end the quarter 3.3 percent higher , rallying in July and August, partly due to geopolitical tensions including North Korea's missile tests.

U.S. data showed inflation remained benign in August with the core personal consumption expenditures (PCE) price index rising 1.3 percent year-on-year, after advancing 1.4 percent in July.

Core PCE is the Federal Reserve's preferred inflation measure and has a 2 percent target.

Friday's data, however, hardly dimmed prospects of a rise, with financial markets pricing a roughly 71 percent probability of a December interest rate hike, compared with 76 percent earlier, the CME FedWatch tool showed.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

Looming geopolitical tensions limited gold's losses, added Bart Melek, head of commodity strategy at TD Securities in Toronto.

Meanwhile, palladium was up 0.8 percent at $936.20 per ounce. It was up 11.3 percent for the quarter and 38 percent in 2017.

Platinum was down 1.1 percent at $909.74 per ounce. The metal is set for an 8.7 percent drop for September.

Palladium traded at a premium to platinum for a third straight day after prices for the two metals hit parity for the first time since 2001 on Wednesday.

"We have held the view that although palladium would overtake platinum in the short term, the latter should ultimately regain its premium," said analyst Joni Teves at UBS.

"A rebound in gold would drag platinum higher and is the most likely trigger for a correction in PGM (platinum group metals) relative prices in the near term."

Highlighting investors' bullish attitude to palladium, exchange-traded fund holdings in the metal showed the first quarterly inflow since the second quarter of 2015.

Silver was down 0.6 percent at $16.73 per ounce and was on track for a 5.1 percent loss on the month, but end the quarter 0.6 percent higher.

(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru and Jan Harvey in London; editing by Dale Hudson and Andrew Hay)