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PRECIOUS-Gold prices drop as Sino-U.S. trade uncertainty dents yuan

Sethuraman N R

* SPDR Gold falls 0.9 pct on Friday

* Speculators raise net longs in COMEX gold in the week to May 7 (Updates prices)

May 13 (Reuters) - Gold prices fell on Monday as Sino-U.S. trade tensions and uncertainty over a deal weighed on yuan, making bullion expensive for buyers in world's largest consumer - China.

Spot gold was down 0.3% at $1,282.78 per ounce, as of 0715 GMT.

U.S. gold futures slipped 0.2% to $1,283.40 an ounce.

"Gold price in yuan has risen fairly sharply since early May and Shanghai premiums are softening. That is probably taking the edge off demand and maybe inducing some people to offer (sell) gold," said Nicholas Frappell, global general manager, ABC Bullion.

The trade war between the world's two leading economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after Trump said Beijing "broke the deal" by reneging on earlier commitments. China has vowed to retaliate, without giving details.

The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any "bitter fruit" that harmed its interests.

The offshore Chinese yuan dropped to its lowest levels in more than four months at 6.904 to the dollar. It last stood down 0.8% at 6.898 per dollar. A weaker yuan makes gold expensive for buyers in China.

"Markets are still living in some form of half-glass full optimism, but that is likely to erode with time as the reality of a full-blown trade war sinks in," said Howie Lee, economist, OCBC Bank.

"I expect demand for gold to gain traction in the coming weeks," Lee added.

While gold has managed to find support due to a risk-aversion mood among investors, prices have been stuck in a $15 dollar range over the past week despite the slump in global markets.

Gold was also facing a barrier around $1,290 levels, restricting buying from traders who follow technical charts, analysts said.

"Gold's performance has been rather disappointing to both bulls and bears alike," INTL FCStone analyst Edward Meir said in a note.

Signals are mixed for spot gold, as it is stuck in a neutral range of $1,284-$1,291 per ounce, according to Reuters technical analyst Wang Tao.

While holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.9 percent on Friday, speculators raised their net-long position in gold in the week ended May 7.

"Although there was not much propulsion this past week, we think the momentum (in gold) could build, especially if equity weakness remains deep and protracted," Meir said.

Silver was down 0.6% at $14.66 per ounce, while platinum fell 1.2% to $850.66.

Palladium dropped 1.4% to $1,337.65. (Reporting by Nallur Sethuraman in Bengaluru; Editing by Uttaresh.V and Sherry Jacob-Phillips)