* Prices rise back towards Monday's five-month peak
* Specs trim net short positions in gold in week to Dec. 4
* Gold priced in various currencies:
By Swati Verma
BENGALURU, Dec 11 (Reuters) - Gold firmed on Tuesday as
expectations that the U.S. Federal Reserve may slow its interest rate
hike trajectory next year weighed on the dollar and stoked interest in
bullion, which as a non-yielding asset tends to suffer from rising
Spot gold was up 0.3 percent at $1,247.68 per ounce, as of 1239
GMT. It touched its highest since July 11 at $1,250.55 in the prior session.
U.S. gold futures were 0.3 percent higher at $1,253.10 per ounce.
"Fed funds futures pricing has been reducing the market
expectations for hikes over the next 18 months and that has been
coming through in a slightly softer dollar and a stronger gold
price," said Marcus Garvey, analyst at ICBC Standard bank.
"As real interest rates in the U.S. approach a neutral level,
we think the Fed is going to get incrementally cautious and won't be
hiking rates in such a metronomic fashion. In light of that, we think
prices could rally back into the high $1,200s."
The U.S. Federal Reserve is widely expected to raise rates at its
Dec. 18-19 meeting, but the market is focusing on how much further it
might lift rates next year.
Based on prices of Fed fund futures, traders now see a 73 percent
chance of a rate hike next week, and just a 49 percent chance of a
further hike by the end of next year.
Investors also kept a close eye on developments surrounding
Britain's departure from the European Union after the country's prime
minister postponed a vote on her deal.
"Postponing the vote – probably until mid-January – means
that the UK government has even less time for the entire Brexit
procedure. Most importantly, it means continued uncertainty, which
should keep demand for gold at a high level," Commerzbank
analysts said in a note.
Gold in sterling terms reached its highest since September 2017
on Monday at 996.27 pounds an ounce.
Spot prices of the precious metal, seen as a safe investment
during uncertain times, have risen about 8 percent from a low of
$1,159.96 in mid-August.
Meanwhile, hedge funds and money managers trimmed their net short
positions in Comex gold contracts in the week to Dec. 4, data showed
"There remains significant scope for the market to further
increase long positions and to further reduce short positions. A
weaker dollar, driven by moderating Fed policy, could provide the
market with the necessary impetus," Societe Generale said in a note.
Among other precious metals, palladium was trading at a premium
to gold prices, up 2.6 percent to $1,249.03 an ounce.
Spot silver rose about 1 percent to $14.67 per ounce. Platinum
inched 0.1 percent higher to $786.30 per ounce. Prices had slipped to
their lowest since Sept. 10 at $773.50 in the previous session. ($1 =
(Reporting by Swati Verma in Bengaluru; Editing by Jan Harvey)
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