PRECIOUS-Gold heads for biggest monthly drop in more than 17 years

* Gold down more than 13% so far this month; up 5% in March quarter

* Dollar eyes best month since July; emerges as war's safe-haven shelter

* Silver, platinum, palladium fall about 20% each in March (Updates prices, adds details and comments)

By Noel John

March 31 (Reuters) - Gold rose on Tuesday but stayed on track for its biggest monthly drop in more than 17 years as investors flocked to the dollar as the favoured safe haven amid the Middle East war that has raised inflation fears and bets for hawkish monetary policy response.

Spot gold climbed 0.9% to $4,550.68 per ounce by 0727 GMT. U.S. gold futures for April delivery gained 0.5% to $4,580.70.

Bullion has declined more than 13% this month, putting it on track for its steepest decline since October 2008. Prices are, however, up about 5% for the quarter, having scaled a record high of $5,594.82 on January 29. Prices are down 18.70% from record highs.

"Traders are still seeing gold through the lens of a value investment at these levels, given where the precious metal was trading just a few months ago. So, it's a combination of falling oil, a dip in the dollar and attractive buying levels, which has propelled gold higher today," said Tim Waterer, chief market analyst, KCM Trade.

Gold is typically seen as a hedge against inflation and geopolitical risks, but the war-driven surge in energy costs is also raising expectations for higher interest rates and boosting the dollar's appeal as the preferred safe haven.

The dollar was headed for its biggest monthly gain since July, making it as the strongest safe asset, supported by the U.S. status as an energy exporter and investors' flight to cash over the past month of conflict.

Traders have almost completely priced out any chance of a U.S. rate cut this year from about two cuts expected before the war.

"If the Strait of Hormuz remains closed, oil prices could remain volatile with potential for further upside on supply constraints. So, this high oil story, which has plagued gold prices since the conflict began, hasn't gone away yet," Waterer said.

Goldman Sachs, however, said it continues to expect gold prices will reach $5,400 per troy ounce by end-2026 on central bank diversification and Federal Reserve easing.

Among other metals, spot silver rose 2.7% to $71.89 per ounce, spot platinum gained 1% to $1,917.49, and palladium was up 1.5% at $1,427. All three metals were down about 20% each so far in March.

(Reporting by Noel John and Swati Verma in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)