PRECIOUS-Gold drops from 7-year highs as U.S.-Iran worries abate

 (Updates prices, adds comment)
    * Palladium hits record peak of $2,149.50/oz
    * Dollar holds near two-week high
    * SPDR Gold holdings fell 1.05% on Wednesday

    By Sumita Layek
    Jan 9 (Reuters) - Gold dropped as much as 1% on Thursday,
drifting further away from a near 7-year peak hit in the
previous session, as the prospect of an escalation in U.S.-Iran
conflict waned after the two sides softened their stance.
    Spot gold        fell 0.7% to $1,545.47 per ounce by 0812
GMT, having earlier slipped to $1,539.78 an ounce. U.S. gold
futures         dipped 0.9% to $1,546.50.
    Following the signs that the United States and Iran are
looking to defuse the crisis there is a degree of relief in
markets, Ilya Spivak, a senior currency strategist at DailyFx,
    "We did not see an immediate escalation, although it would
not be accurate to say that it cannot happen, there is that
    Gold, considered a safe investment in times of political and
economic uncertainty, had risen as much as 2.4% early on
Wednesday and risen above the key $1,600 level for the first
time in nearly seven years after Iran's retaliatory attacks.
    However, concerns of a larger Middle East conflict eased
after President Donald Trump later on Wednesday said the United
States did not necessarily have to respond militarily to Iran's
attack on U.S. troops in Iraq, triggering a sell-off in
safe-haven gold.
    Comments from Iranian Foreign Minister Mohammad Javad Zarif
that the strikes "concluded" Tehran's response to the killing of
commander Qassem Soleimani also suggested tensions had eased.
    "There were sharp price rallies and prices have corrected
because of the easing tensions between Iran and the United
States," said Hareesh V, head of commodity research at Geojit
Financial Services.
    "Apart from that, the dollar has been on the positive side
for the last 2-3 days and if it rises further, definitely we can
see more correction in gold prices."
    The dollar index        was hovering close to a two-week
high, making bullion costly for holders of other currencies.
    Asian shares had a relief rally as concerns about a wider
conflict faded, further pressuring bullion prices.            
    Markets are also watching out for key U.S. economic data
such as the non-farm payrolls and unemployment data on Friday.
    Holdings of the world's largest gold-backed exchange-traded
fund SPDR Gold Trust       fell 1.05% to 886.81 tonnes on
    Among other precious metals, palladium        hit a record
peak of $2,149.50 an ounce on sustained supply concerns, and was
last down 1% at $2,083.58.
    Silver        fell 1% to $17.90 per ounce, after hitting its
highest since September at $18.85 on Wednesday, while platinum
       slipped 0.2% to $952.08.

 (Reporting by Asha Sistla in Bengaluru. Editing by Jane