By Peter Hobson
LONDON (Reuters) - Gold was set for its first weekly gain in four weeks on Friday after soft U.S. inflation data suggested that the Federal Reserve might show caution on the pace of interest rate rises.
The weaker-than-expected April consumer price data on Thursday helped to knock the dollar from 2018 highs and push U.S. bond yields down. The dollar fell further on Friday.
That benefits gold because a weaker dollar makes bullion cheaper for users of other currencies, while lower bond yields make non-yielding gold more attractive to investors.
"It (gold's rise) was mostly a response to the consumer price data out of the U.S. yesterday," Capital Economics analyst Simona Gambarini said.
St. Louis Federal Reserve Bank President James Bullard on Friday spelled out the case against any further interest rate increases. Rates may already have reached a "neutral" level that is no longer stimulating the economy, he said, and going further risks nipping off business investment that may follow the recent corporate tax cut.
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Spot gold was up 0.1 percent at $1,322.90 an ounce at 1420 GMT after touching its highest since April 25 at $1,325.96, nudging its 100-day moving average of $1,326. It was up 0.6 percent for the week.
U.S. gold futures for June delivery had gained 0.1 percent to $1,323.30.
Gold has traded in a range of about $1,310 to $1,355 since hitting a 1-1/2-year high in January.
Prices appeared to be building positive momentum, ScotiaMocatta technical analysts said. Consolidation above resistance at the 100-day moving average might be a catalyst for more gains, MKS PAMP trader Tim Brown said.
But Capital Economics' Gambarini said that with the Fed likely to raise interest rates three more times this year, gold was likely to end 2018 at $1,300. Higher interest rates hurt gold because they push up bond yields and tend to boost the dollar.
Gold investors largely brushed off tensions in the Middle East after the United States ditched an accord designed to stop Iran from developing nuclear weapons and Israel attacked Iranian military infrastructure in Syria.
"Geopolitical concerns are still a concern but investors aren't paying significant attention," Think Markets chief markets analyst Naeem Aslam said.
"The dollar story is more prominent," he said.
A summit between the United States and North Korea to be held in Singapore on June 12 also eased fears of conflict.
Gold is traditionally seen as a safe asset in times of uncertainty.
In other precious metals, silver was up 0.7 percent at $16.79 an ounce, rising above its technically important 100-day moving average and nearing its 200-day moving average. It was at 2-1/2-week highs and set for a weekly gain of 1.8 percent.
Platinum was flat at $924.10, having hit its highest since April 25 at $929.10.
Palladium was down 0.5 percent to $994.40, holding above its technically important 200-day moving average after reaching its highest since April 23.
(Additional reporting by Apeksha Nair in Bengaluru; Editing by Louise Ireland and Susan Fenton)