* Traders pricing in 67% probability of rate cut in Sept

* More central banks to add to gold reserves within a year - WGCUS Retail sales miss expectations in May

June 18 (Reuters) - Gold prices edged higher on Tuesday after softer-than-expected U.S. retail sales data cemented hopes that the Federal Reserve will reduce interest rates this year, sending the dollar and Treasury yields lower.

Spot gold was up 0.2% at $2,323.96 per ounce by 09:54 a.m. ET (1354 GMT). U.S. gold futures rose 0.4% to $2,338.60.

"Weaker-than-expected retail sales data brought the dollar lower, and at the same time, yields backed off, so that's providing some upside to gold prices here," said Daniel Pavilonis, senior market strategist at RJO Futures.

U.S. retail sales rose 0.1% last month, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales gaining 0.3% in May.

Fed Bank of New York President John Williams said interest rates will come down gradually over time, but he declined to say when the central bank can begin easing monetary policy.

Traders are currently pricing in about a 67% chance of a Fed rate cut in September, according to CME FedWatch Tool. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Gold prices are down 6% from a record high of $2,449.89 per ounce touched on May 20 amid a rally which happened against traditional headwinds such as a strong dollar and high interest rates.

As to crucial categories of gold demand, a pause taken by China's central bank in May gold purchases continued to weigh on the market.

However, an annual survey of central banks by the World Gold Council (WGC) delivered its highest share of respondents, saying they expected their gold reserves to increase within 12 months.

Spot silver eased 0.2% to $29.43 per ounce. However, Nitesh Shah, commodity strategist at WisdomTree, expects the metal to get support in the coming months from this year's deepening structural market deficit amid growth in solar panel usage.

Platinum gained 0.9% to $973.60 and palladium slipped 0.8% to $881.35.

(Reporting by Brijesh Patel in Bengaluru and Polina Devitt in London)