Gold prices eased on Friday but headed for a third straight weekly rise, after cooler-than-expected U.S. inflation data sparked hopes that the Federal Reserve will likely start cutting interest rates in September.

Spot gold fell 0.2% at $2,408.70 per ounce, as of 0148 GMT after rising 2% on Thursday.

U.S. gold futures eased 0.3% at $2,413.90.

Data on Thursday showed that U.S. consumer prices unexpectedly fell and the annual increase was the smallest in a year, drawing the Fed another step closer to cutting interest rates.

"Inflation outlook and interest rate picture have moved in favour of gold this week. As we move closer to a lower interest rate environment, conditions could be ripe for gold to set new record highs before the year is out," said Tim Waterer, KCM Trade's chief market analyst.

According to CME FedWatch Tool, bets of a September U.S. cut were now at 93%, compared to a 70% chance before the data was released.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

San Francisco Fed Bank President Mary Daly on Thursday said that she expects further easing in both price pressures and the labor market to warrant interest rate cuts, while Chicago Fed Bank President Austan Goolsbee said the U.S. economy looks like it is back on track to 2% inflation.

Investors now await the U.S. producer price index (PPI) reading due at 1230 GMT.

"The PPI figures could be key in determining which side of the $2,400 level gold ends the week at," Waterer said.

Spot silver slipped 0.8% to $31.20 per ounce, after scaling a more than one-month high on Thursday.

Platinum fell 0.2% at $1,001.90 and palladium dropped 1% to $984.63. Both the metals were set to register weekly declines.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Rashmi Aich)