PRECIOUS-Gold holds near 3-1/2 week low as US rate hike outlook drags – Reuters

* Bullion hit by prospect of Fed hike sooner  rather than later     * Could fall below $     1,200 in next couple of months - analyst     *  Palladium marks lowest in nearly 6 wks, silver in  five weeks   (Updates prices)     By Vijaykumar  Vedala     BENGALURU, May 24 Gold dipped on  Tuesday to trade near a 3-1/2 week low hit in the  previous session, pressured by expectations that  the U.S Federal Reserve will raise interest rates  sooner rather than later.     The prospect of an  early rate hike, as indicated by Fed meeting  minutes released last week, and a strengthening  dollar have pushed down bullion by 3.6 percent so  far in May, on track for its biggest monthly  decline since November.      Gold is sensitive to  interest rates, gains in which raise the  opportunity cost of holding non-yielding bullion.       Spot gold fell 0.3 percent to $    1,244.71  per ounce by 0634 GMT. The metal on Monday dropped  to its lowest since April 28 at $    1,242.63 an  ounce.     U.S. gold futures eased 0.5 percent to  $    1,245.30 per ounce.      "Over the next two  weeks ... if the economy is on the firm side in  the U.S. and the Fed is ready to move, maybe July  at the earliest, then I would say gold is ready to  see a correction," said analyst Dominic Schneider  of UBS Wealth Management in Hong Kong.     "I  definitely think gold can fall back below $     1,200 in the coming one or two months."     Senior  Fed officials on Monday said that rates being kept  too low for too long could cause financial  instability and that the U.S. central bank would  continue with rate increases next year.        The  Fed's policymakers are scheduled to speak this  week and are expected to back the case for a rate  hike within months.      "If there was to be a  hint coming, it could come on Friday when Janet  Yell appears, talks and perhaps may decide to  further 'prep' the markets for a rate hike going  into next week," INTO Capstone analyst Edward  Meier said in a note.       Fed Chair Janet Yell  will be at a panel event hosted by Harvard  University on Friday.      Goldman Sachs sees a  35-percent chance of a rate hike at the Fed's June  14-15 policy meeting.      Holdings in SPDR Gold  Trust, the world's largest gold-backed  exchange-traded fund, rose 0.38 percent to 872.52  tonnes on Monday.     Meanwhile, spot silver fell  0.6 percent to $    16.26 per ounce to touch a new  five-week low, while spot platinum  remained flat  at $    1,006 per ounce, after touching a  four-week low of $    1,000.50 earlier in the day.       Spot palladium dropped 0.6 percent to $     544.75 per ounce, having hit a near six-week  trough of $    543.50 earlier in the session.     (Additional reporting by Koustav Samanta in  Bengaluru; Editing by Joseph Radford and  Subhranshu Sahu)