(Reuters) - Gold prices pulled back on Friday as the rally lost steam, and traders booked profits after bullion climbed to a more than two-month peak on fading bets of U.S. Federal Reserve interest rate hikes.
Spot gold eased 0.1% to $4,344.24 per ounce by 0851 GMT, extending losses after declining 1.3% in the last session and erasing most of this week's gains. U.S. gold futures for December delivery fell 0.4% to $4,400.40 per ounce.
"Gold trades lower for a second day as profit-taking sets in following a strong run of gains, with tame U.S. inflation data and reduced expectations for further rate hikes largely priced in for now," said Saxo Bank analyst Ole Hansen.
"Following the breakout last week, gold is now caught in a $4,200 to $4,500 range with the latter being the 200-day moving average, a key signal for medium to longer term investors," he added.
Bullion rallied to its highest point since June 5 on Thursday.
U.S. producer prices were unchanged in July, following a revised 0.1% drop in June, while U.S. consumer prices barely increased last month as the cost of gasoline declined for a second consecutive month.
Traders are now pricing only a 33% chance of a rate hike in September, down from about 44% last week, according to the CME FedWatch Tool. FEDWATCH Lower interest rates boost gold as it does not yield interest.
Physical gold discounts in India widened this week to their highest levels in more than two months as the rally in prices curbed consumption, while interest in China remained muted. Meanwhile, oil prices climbed after Washington threatened an open-ended naval blockade on Iran, reviving supply concerns.
In other metals, spot silver rose 0.3% to $64.67 per ounce. Platinum was up 0.4% to $1,723.64 per ounce and palladium gained 0.2% to $1,309.61 per ounce, both metals were headed for a weekly drop.