(Reuters) - Gold firmed on Friday as a softer US dollar and easing Treasury yields boosted bullion's appeal, while market players weighed lingering inflation concerns and the outlook for Federal Reserve interest rates.
Spot gold rose 0.9% to $4,169.32 per ounce by 0137 GMT after hitting a two-month low on Wednesday. US gold futures gained 0.9% to $4,194.40.
The dollar rally took a breather, making greenback-priced bullion more affordable for holders of other currencies, while the benchmark 10-year Treasury yield slipped for a second straight session.
"Possible tightening later on could keep gold at risk, especially as inflation fears remain high amid a rise in oil prices following increased Middle East supply disruption risks. However, ongoing central bank demand may limit losses," said Tony Sage, CEO of Critical Metals.
"Looking ahead, traders will watch upcoming economic data that could provide further monetary policy clues and influence sentiment ahead of the Federal Reserve’s October meeting."
Last month, the US central bank voted unanimously to raise the policy rate by a quarter of a percentage point.
St. Louis Fed President Alberto Musalem said the US central bank will need to hike rates again to bring inflation back to its 2% target, although he declined to say what policymakers should do at their meeting later this month.
Traders are pricing in an 18% chance of a rate hike in October and an 82% probability of an increase in December, according to CME's FedWatch tool. Gold is traditionally seen as a hedge against inflation, but higher interest rates diminish the appeal of the non-yielding asset.
President Donald Trump said the US will not launch an attack on Iran before November's US midterm congressional elections, asserting that the two countries are having "productive" talks about ending the six-month-old war.
Spot silver rose 1.1% to $60.00, platinum gained 2.2% to $1,670.15 and palladium climbed 2.1% to $1,146.98. But all three metals were on track for weekly losses.