* Dollar up on speculation Trump might pick policy hawk as Fed chief
* Tension in Iraq, Korean peninsula prevent steep losses
* Spot gold may drop to $1,281/oz - Technicals
* Palladium off highest in over 16 years hit on Monday
(Updates prices) Oct 17 (Reuters) - Gold prices fell on Tuesday, pressured by a firmer dollar but worries over geopolitical tensions in the Middle East and on the Korean peninsula kept further losses in check.
Spot gold was down 0.4 percent at $1,289.20 an ounce, as of 0706 GMT, while U.S. gold futures for December
delivery slipped 0.9 percent to $1,291.70 per ounce. The dollar edged up against its peers on Tuesday, supported President Donald Trump was favouring a policy hawk as the next head of the Federal Reserve. Trump will meet with Fed Chair Janet Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with the planned meeting said. The Fed will probably need to raise interest rates in December and then three of four times "over the course of next year", assuming the U.S. unemployment rate continues to fall and inflation rises, Boston Fed President Eric Rosengren said.
"On the bearish side, a resilient dollar and rising interest rates (and stocks) are all impacting gold negatively, while the fragile geopolitical mosaic is offering an element of support," INTL FCStone analyst Edward Meir said in a note. Higher U.S. interest rates tend to boost the dollar and push up bond yields, putting pressure on greenback-denominated gold.
"A lot of the price drivers that are clouding gold prices are really geopolitical tensions rather than fundamentals," said OCBC analyst Barnabas Gan. "Geopolitical tensions are a crucial and unquantifiable factor when it comes to affecting prices, so it (gold) is just all over the place now." Iraqi government forces captured the major Kurdish-held oil city of Kirkuk on Monday, responding to a Kurdish referendum on independence with a bold lightning strike that transforms the balance of power in the oil-producing country. The United States is not ruling out the eventual possibility of direct talks with North Korea, Deputy Secretary of State John J. Sullivan said on Tuesday, hours after Pyongyang warned nuclear war might break out at any moment. Spot gold may drop to $1,281 per ounce, as it failed to break resistance at $1,305, said Reuters technicals analyst Wang Tao.
In other precious metals, silver fell 0.6 percent to
$17.08 an ounce.
Platinum was unchanged at $928.60 an ounce while palladium edged 0.3 percent higher to $975.50, after
hitting its best since February 2001 in the previous session.
(Reporting by Apeksha Nair in Bengaluru; Editing by Joseph Radford and Sherry Jacob-Phillips)