PRECIOUS-Gold on the back foot as markets await central banks' inflation response

(Adds comment, updates prices)

* Dollar dips from 16-month highs as rally takes a pause

* Gold could trade in $1,850-$1,875 range in near term-analyst

* Silver demand could rise this year-Silver Institute

Nov 18 (Reuters) - Gold prices edged lower on Thursday as investors remained torn over how fast the U.S. Federal Reserve will taper its monetary stimulus and raise interest rates after the recent strong inflation data out of the United States.

Spot gold was down 0.2% at $1,863.70 per ounce by 1226 GMT, while U.S. gold futures eased 0.2% to $1,866.10.

The U.S. dollar paused for breath, slipping back from a 16-month peak as traders assessed whether its recent surge was starting to stall. A weaker dollar makes gold more attractive for buyers holding other currencies.

“We’ve had a decent rise to the upside and yields are a bit firmer so that could be actually pushing gold prices down,” said Michael Hewson, chief market analyst at CMC Markets UK.

“At the moment it’s very uncertain what the Fed policy is likely to be. Given the direction of recent economic data and Federal Reserve Bank President James Bullard’s comments, gold is in a holding pattern before the next Fed meeting.”

St. Louis Federal Reserve bank president James Bullard on Tuesday said the Fed should “tack in a more hawkish direction” over its next couple of meetings.

Bullion, considered a hedge against inflation, has gained on the back a surge in consumer prices in the U.S. and Europe. But that has also bolstered bets for early interest rate hikes, which would increase the opportunity cost of holding non-yielding gold.

“Until the Fed actually signals an accelerated taper, gold should hold its current $1,850 and $1,875 range with the potential appointment of Lael Brainard as the new Fed Chair, considered a super dove, likely to push it above $1,875,” Stephen Innes, managing partner at SPI Asset Management.

Silver fell 0.2% to $24.99 per ounce. Platinum rose 0.3% to $1,060.07 per ounce, while palladium dipped 1% to $2,166.07. (Reporting by Arundhati Sarkar and Swati Verma in Bengaluru; Editing by Simon Cameron-Moore, Elaine Hardcastle)