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Gold claws way back into the black after Trump sacks Tillerson

FILE PHOTO: A employee works on 1 kg. gold bars in Ahlatci Metal Refinery in the central Anatolian city of Corum, Turkey, May 11, 2017. REUTERS/Umit Bektas

By Renita D. Young and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold prices turned positive on Tuesday as the U.S. dollar lost ground after news that U.S. President Donald Trump replaced Secretary of State Rex Tillerson, while U.S. inflation data was in line with forecasts.

Spot gold (XAU=) was up 0.3 percent at $1,326.49 an ounce by 1:42 p.m. EDT (1742 GMT), while U.S. gold futures (GCcv1) for April delivery settled up 0.5 percent at $1,327.10.

Trump fired Tillerson after a series of public rifts over policy on North Korea, Russia and Iran, replacing him with loyalist Central Intelligence Agency Director Mike Pompeo.

"The dollar is lower and gold is higher off the Tillerson news. We've been seeing this pattern (of gold following the dollar) because there's no other strong factor leading to buying gold now," said Bill O’Neill, co-founder of Logic Advisors.

The U.S. dollar index (.DXY) relinquished its gains and fell against a basket of currencies, making commodities priced in the greenback cheaper for buyers using other currencies.

Also weighing on the dollar was news that U.S. consumer prices cooled in February, the latest indication that an expected pick-up in inflation is likely to be only gradual.

Some investors had been worried stronger-than-expected CPI data could stoke expectations that the U.S. Federal Reserve will raise interest rates four times rather than three this year.

Higher interest rates typically make gold less attractive since it does not bear interest.

"Overall the outlook is not looking that great in the short term. I still expect prices to go towards $1,300, said Georgette Boele, ABN AMRO commodity strategist.

Markets are looking to the next Fed meeting for direction on the pace of U.S. interest rate hikes this year.

"As we approach next week's FOMC day, we should see gold come under pressure as it struggles to compete against interest-bearing assets," said Daniel Ghali, commodities strategist at TD Securities.

Silver (XAG=) rose 0.6 percent at $16.59 an ounce.

Platinum (XPT=) was up 0.4 percent at $966.60 an ounce, near a one-week high of $970.90. Palladium (XPD=) climbed 1.7 percent to $995.30 per ounce, after touching a one-week high of $997.40.

The platinum price will struggle to move back above palladium, ING analyst Oliver Nugent said in a note.

"Based on our own forecasts, we don't think such a move will happen for the next few years due to platinum's weaker fundamentals with the palladium backwardation actually making it more expensive for investors to short the ratio."

The platinum/palladium ratio increased from late February. Palladium flipped to a premium over platinum last September for the first time since 2001.

(Additional reporting by Nithin Prasad and Eileen Soreng in Bengaluru, and Marcy Nicholson in New York; Editing by David Goodman and Richard Chang)