* Gold set to drop 3.5% in worst month in seven
* Dollar, bond yields on track for best quarters a year
* Silver, platinum, palladium eye quarterly gains
Sept 29 (Reuters) - Gold prices rose on Friday as a rally in U.S. dollar and Treasury yields stalled, but was on track for monthly and quarterly declines on increased hopes that the U.S. Federal Reserve would keep interest rates higher for longer.
Spot gold rose 0.4% to $1,872.20 per ounce by 1030 GMT. U.S. gold futures gained 0.6% to $1,889.80.
The dollar pulled back from 10-month highs and benchmark 10-year Treasury yields retreated from a 16-year peak, lifting bullion's appeal, but both were still headed for their best quarters in a year.
Bullion touched its lowest in six months on Thursday, and was set for its worst month in seven with a 3.5% decline in September and 2.5% fall for the quarter.
Rate cuts have been pushed back by as much as 12 months, if not more, and that's a huge shift in terms of the monetary policy approach, which has massive implications for gold in a bearish way, said Craig Erlam, senior markets analyst at OANDA.
Higher rates raise the opportunity cost of holding bullion, which is priced in dollars and does not yield any interest.
"For as long as the market continues to expect a “soft” landing in the U.S., no price recovery (for spot gold) is likely to happen for now," Commerzbank analysts said in a note.
Data on Thursday showed the U.S. economy maintained a fairly solid pace of growth in the second quarter.
Markets are now positioning for the August personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge due at 1230 GMT.
Spot silver gained 2% to $23.05 per ounce, platinum firmed 1.2% to $915.15, and palladium rose 0.6% to $1,279.69. All three were poised to squeeze out quarterly gains if trend holds.
(Reporting by Harshit Verma and Deep Vakil in Bengaluru; Editing by Varun H K)
