By Anjana Anil - Gold prices eased on Thursday as the dollar staged a rebound ahead of U.S. inflation data, although bullion was heading for its second monthly rise boosted by hopes that the Federal Reserve would cut interest rates soon.
Spot gold eased 0.3% to $2,038.59 per ounce by 1207 GMT. Bullion is up 2.8% so far this month after rising 7.3% in October.
U.S. gold futures for December delivery fell 0.4% to $2,039.40.
The dollar index extended gains against its rivals, making gold more expensive for other-currency holders. However, the greenback was still on track for its worst month in a year.
"The downside risk for gold now is the idea that the declines being seen in the pace of inflation start to slow and those rate cut bets get pared back as inflation becomes stickier," Michael Hewson, chief market analyst at CMC Markets, said.
Market focus is now on the U.S. personal consumption expenditure data, the Fed's preferred inflation gauge, at 1330 GMT.
"Today's PCE data is unlikely to alter perceptions about another hold from the Fed in December with focus likely to shift to next week's payrolls report," Hewson added.
Also on the horizon is Fed Chair Jerome Powell's speech on Friday.
Fed officials this week flagged possibilities of a rate cut in the coming months and expected growth to slow and inflation to further ease, dragging 10-year Treasury note yields to a two-and-a-half month low.
Traders have now advanced bets for a rate cut by the U.S. central bank from an 80% chance in May to a one-in-two chance in March, according to CME's FedWatch tool.
Lower interest rates reduce the opportunity cost of holding gold.
Silver rose 0.1% to $25.04 per ounce, and was heading for its second straight monthly gain. Platinum was up 0.5% at $936.13.
Palladium slipped 1.2% to $1,015.34, and was heading for its second consecutive monthly decline.
(Reporting by Anjana Anil in Bengaluru; Editing by Alison Williams and Chizu Nomiyama)