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PRECIOUS-Gold jumps to 6-week top after Fed statement, U.S. dollar drops

    * Gold turns higher after Fed statement
    * Fed holds rates flat as expected
    * Dollar turns lower, U.S. Treasury yields drop

 (New throughout, adds Fed statement, updates prices, market
activity and comment; adds second byline and dateline, previous
LONDON)
    By Marcy Nicholson and Maytaal Angel
    NEW YORK/LONDON, July 26 (Reuters) - Gold jumped 1 percent
to a six-week high on Wednesday, after the U.S. Federal Reserve
said it would start to wind down its massive holdings of bonds
"relatively soon," pushing the dollar lower.
    The U.S. central bank kept interest rates unchanged as
expected and said it was continuing the slow path of monetary
tightening that has lifted rates by a percentage point since
2015, the Fed said in a statement following a two-day meeting.
            
    Spot gold        rallied 1.1 percent to $1,262.11 an ounce
by 3:11 p.m. EDT (1911 GMT). Its session high of $1,263.42 was
the highest since June 15.
    Before the Fed statement, U.S. gold futures         for
August delivery settled down 0.2 percent at $1,249.40.
    "Gold clawed back recent losses and surged to fresh highs of
the rally as the Fed confirmed it was on a summer sabbatical
with a safe statement that nodded to lower inflation but was
offset by a confirmation that balance sheet tapering would occur
'relatively soon,'" said Tai Wong, director of base and precious
metals trading for BMO Capital Markets in New York.
    The dollar        fell to a 13-month low against a basket of
major currencies after the Fed statement. U.S. 10-year Treasury
yields             also fell, providing support to bullion.
      
    Lower yields decrease the opportunity cost of holding
non-yielding gold, while a weaker greenback makes dollar-priced
bullion less expensive for holders of other currencies.
    "They weren't quite ready to start the clock on letting
bonds roll off their balance sheet, but saying it's coming
'relative soon' is in line with our view that it's on tap for
the September decision," said Avery Shenfeld, chief economist
for CIBC Capital Markets.
    Prior to the statement, expectations of another rate hike
before the end of the year were less than 50 percent. 
    "We expect the Fed to delay its next rate hike until
December this year, with risks skewed toward a longer pause
given the possibility that core inflation takes longer to
recover. We expect two rate hikes next year." ABN Amro economist
Nick Kounis said in a note.
    Holdings at the SPDR Gold Trust      , the world's largest
gold-backed exchange-traded fund, fell 1.13 percent to 800.45
tonnes on Tuesday from 809.62 tonnes on Monday, weighing on gold
prices earlier in the session.             
    In other precious metals, silver        turned higher and
was up 0.8 percent at $16.59 per ounce.
    Platinum        edged up 0.03 percent to $923.75 per ounce,
while palladium        rose 1.1 percent to $866.40 per ounce.

 (Additional reporting by Nithin Prasad and Arpan Varghese in
Bengaluru; Editing by Elaine Hardcastle and David Gregorio)
  
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