Gold rebounds above $2,000 as dollar, yields retreat

April 18 (Reuters) - Gold prices clawed their way back above the key $2,000 level on Tuesday as the dollar and bond yields retreated, with investors weighing whether the U.S. Federal Reserve will pause its interest rate hike cycle after the May meeting.

Spot gold was up 0.5% at $2,005.41 per ounce by 1:41 p.m. EDT (17:41 GMT), after hitting a two-week low of $1,981.19 in the previous session. U.S. gold futures settled 0.6% higher at $2,019.70.

The dollar index in the first quarter, making greenback-priced bullion more attractive to overseas buyers, while benchmark U.S. Treasury yields dipped.

"What gold traders really care about is how fast do we get the (rate) cuts. The market has already priced for cutting cycle to begin even as early as this summer," said Daniel Ghali, commodity strategist at TD Securities.

Markets were pricing in an 86% chance of a 25-basis-point rate hike at the Fed's May 2-3 meeting, and odds of 71% for a pause in June.

Higher interest rates to combat rising prices tend to lower demand for gold, countering its customary role as an inflation hedge.

St. Louis Fed President James Bullard said the Fed should continue raising rates as recent data shows inflation remains persistent, while Atlanta Fed President Raphael Bostic said the Fed will likely need to hold steady for an extended period to lower inflation after one more rate hikes.

Markets will focus on more comments from Fed officials this week before they enter a blackout period from April 22, ahead of the May meeting.

Palladium rallied 4.6% to $1,631.84 per ounce, its highest in more than two months, while platinum gained 3.2% to a three-month high of $1,081.18.

"Platinum, but to a lesser extent palladium, have been benefiting from the power outages in South Africa, which is a significant supply shock," Ghali said.

Spot silver rose 0.3% to $25.17.

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