* China demand eases ahead of holiday that starts Friday
* Spot gold due to correct lower -technicals
* Platinum slips from 2-1/2 month high hit in previous
session
(Recasts, adds comment)
By Arpan Varghese
Jan 25 (Reuters) - Gold drifted down on Wednesday as Chinese
demand ebbed ahead of the Lunar New Year festival, with some
analysts warning of further declines as prices for the metal
could be due a technical correction.
That came after bullion touched two-month highs earlier in
the week, buoyed by a weaker dollar and uncertainty over the
policies of U.S. President Donald Trump.
Spot gold had fallen 0.5 percent to $1,202.90 per
ounce by 0617 GMT. U.S. gold futures shed 0.7 percent to
$1,202.90.
"(Gold was) unable to capitalise on a softer dollar with
Chinese physical demand beginning to wane as we head ever closer
to the New Year holiday period," MKS PAMP Group trader Sam
Laughlin said in a note.
The dollar index, which measures the greenback
against a basket of currencies, fell 0.1 percent to 100.270.
Spot gold is due for a deep correction, following its
failure to break strong resistance at $1,219 per ounce, said
Reuters technical analyst Wang Tao.
"Gold prices have moved higher since the beginning of the
year and need some technical correction in the very short-term,"
said Jiang Shu, chief analyst at Shandong Gold Group.
"Gold might test levels of $1,185 during the (Lunar New
Year) period."
The metal has rallied about 8 percent since mid-December,
fuelled by worries over Trump's policies. Gold is often seen as
a safe-haven investment in times of geopolitical and financial
uncertainty.
On Monday, Trump formally withdrew from the Trans-Pacific
Partnership trade deal and told U.S. manufacturing executives he
would impose a hefty border tax on firms that import products
after moving American factories overseas.
Meanwhile, holdings of SPDR Gold Trust, the world's
largest gold-backed exchange-traded fund, fell 0.37 percent to
804.11 tonnes on Tuesday from 807.07 tonnes on Monday.
Silver dropped 0.8 percent to $16.95 on Wednesday.
Platinum fell 1 percent to $987.75, after hitting its
highest since Nov. 10 the session before.
Palladium inched up 0.2 percent to $784.72. It marked
its strongest in more than 1-1/2 years the day before.
(Reporting by Nallur Sethuraman and Arpan Varghese in
Bengaluru; Editing by Sonali Paul and Joseph Radford)