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PRECIOUS-Gold climbs to 2-week high ahead of U.S. inflation data

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* Dollar index hits lowest since Sept. 26

* Palladium touches five-week high

* GRAPHIC-2017 asset returns: (Adds comments, news from White House, updates prices)

By Devika Krishna Kumar and Zandi Shabalala

NEW YORK/LONDON, Oct 12 (Reuters) - Gold prices edged higher to a more than two-week high on Thursday as focus shifted to U.S inflation figures due on Friday which are expected to give more clues on monetary policy.

Minutes from a U.S. Federal Reserve September meeting showed policymakers had a prolonged debate about prospects of a pick-up in inflation and slowing the path of future interest rate rises if it did not. The dollar inched up after U.S. data showed new applications for U.S. unemployment benefits last week fell to a more than one-month low after being boosted by two hurricanes. But the greenback still languished near two-week lows against a basket of currencies, weighed down by the U.S. Fed minutes which the market interpreted as dovish. After four straight sessions of gains, spot gold steadied at $1,293.40 an ounce by 3:30 p.m. EDT (1930 GMT). Prices earlier hit $1,297.40, the highest since Sept. 26. U.S. gold futures settled higher at $1,296.50 per ounce.

"The market is looking for a little direction and there's not much on the horizon until we get more geopolitical conflict or we see interest rates pick up," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

A strong corporate earnings season could also give the Fed room to continue raising rates, which would be a headwind for gold, Haworth said.

Gold is highly sensitive to rising interest rates, as they tend to boost the dollar, in which the metal is priced.

Several policymakers said they would focus on upcoming inflation data over the next few months when deciding on the central bank's future rate hike path.

"Overall, for the rest of 2017 we are not bullish on prices, especially with a rate hike still expected this year, and we are looking more towards 2018 for strength," RBC Capital Markets said in a note.

U.S. President Donald Trump is "some time away" from making a decision about who should chair the Federal Reserve, White House chief of staff John Kelly said on Thursday. Political uncertainty also helped to support gold, which investors turn to during periods of turmoil, analysts said.

"If people are not too worried about the Fed's policy, we have North Korea. Surely, geopolitical tensions are supporting prices," Yuichi Ikemizu, Tokyo branch manager at CIBC Standard Bank, said. "We may try $1,300 next week."

The upcoming Diwali festival in India could also spur gold buying, analysts said.

Silver rose 0.4 percent to $17.23 an ounce after touching a three-week high.

Platinum was 0.8 percent higher at $935.49 an ounce, after hitting a more than two-week high earlier in the session.

Palladium jumped 1.9 percent to $977.25, its highest since Sept. 6.

Discussions over a possible substitution between platinum group metals in auto catalysts will likely gather pace if the palladium continues to trade at a premium to the platinum, Bank of America Merrill Lynch said in a note earlier this month.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC-2017 asset returns: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Apeksha Nair in Bengaluru; Editing by Mark Potter and Richard Chang)

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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