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Gold firms on softer dollar with focus on Fed's next move

FILE PHOTO: Gold bars are pictured on display at Korea Gold Exchange in Seoul

By Kavya Guduru

(Reuters) - Gold prices edged higher on Thursday as the dollar eased, while investors positioned themselves ahead of key U.S. inflation data and the Federal Reserve's policy meeting due next week.

Spot gold was up 0.2% at $1,789.42 per ounce, as of 1901 GMT, after rising more than 1% on Wednesday.

U.S. gold futures settled 0.2% higher at $1,801.50.

The dollar index slipped 0.3% against its rivals, making gold less expensive for other currency holders. [USD/]

"We're just waiting for some fresh fundamental inputs," said Jim Wyckoff, senior analyst at Kitco Metals, adding that gold prices are likely to be in "choppy and sideways" trade leading up to the Fed's policy meeting next week.

Investors are keeping a close eye on the Fed policy decision due on Dec. 14, with market participants largely pricing in a 50-basis-point (bps) rate hike. November's consumer price data due on Dec. 13 will also be closely watched.

"What traders are going to watch is not only whether the Fed raises (interest rates) by half a point or three-quarters of a point, but also the tenor of their rhetoric on the pace of future rate hikes," Wyckoff said.

However, recent strong U.S. economic data has led to fears that the Fed may lift interest rates more than recently projected.

"The jobs report was a setback and one that could stand in the way of another break higher before the Fed meeting," Craig Erlam, senior market analyst at OANDA said in a note.

Interest rate hikes to fight soaring inflation tend to raise the opportunity cost of holding non-yielding gold.

The World Gold Council (WGC) said global gold ETFs (exchange traded funds) holdings fell for a seventh straight month in November, although outflows slowed to a modest 34 tonnes worth $1.8 billion. [GOL/ETF]

Spot silver added 1.5% to $23.07 per ounce, platinum rose 0.2% to $1,004.22 and palladium climbed 4.6% to $1,929.98.

(Reporting by Kavya Guduru in Bengaluru; Editing by Sherry Jacob-Phillips and Maju Samuel)