PRECIOUS-Gold slips but trade war fears, Italy vote provide support

 (Recasts throughout; updates prices, headline; adds comment,
NEW YORK to dateline)
    * Concerns persist over impact of Italy poll outcome on EU
    * Silver net shorts at record high
    * Platinum, palladium dip on lower demand from U.S.

    By Renita D. Young and Zandi Shabalala
    NEW YORK/LONDON, March 5 (Reuters) - Gold prices dropped on
Monday as a stronger dollar outweighed the  impact of
uncertainty created by Italy's election result and fears of a
possible global trade war.   
    Spot gold        lost 0.2 percent to $1,319.82 per ounce by
1:38 p.m. EST (1838 GMT), after touching its highest since Feb.
27 at $1,327.86.
    U.S. gold futures         for April delivery settled down
$3.50, or 0.3 percent, at $1,319.90 per ounce. 
    "What might be supporting the dollar: expectations of Fed
rate hikes have really increased over the last week or so," said
Daniel Ghali, commodity strategist at TD Securities, after new
Chair Jerome Powell's testimony indicated his optimistic outlook
on the U.S. economy and opened the door for four interest rate
    The U.S. dollar index       , which measures the greenback
against major currencies, gained 0.2 percent, having touched its
lowest in almost a week earlier in the session        
    But support for gold came from U.S. President Donald Trump's
announcement last week that the country would levy hefty tariffs
on aluminum and steel imports. This was followed by threats of
retaliation from the European Union and Canada.       
    In Italy, voters delivered a hung parliament on Sunday and  
  if early projections are confirmed, none of Italy's three main
groups will be able to rule alone and there is little prospect
of a return to mainstream, moderate government.                
    "Gold is supported because of the talk of trade wars.
Whether they will occur or not will increase the probability of
a policy mistake from the Fed that would obviously be bullish
for gold," Ghali added.
    Gold is often seen as an alternative investment during times
of geopolitical and financial uncertainty, benefiting along with
other safe-haven assets such as the Japanese yen and U.S.
Treasuries while stocks tend to trend lower.                
    The market was anticipating the release of U.S. payroll data
on Friday which will help guide interest rate expectations.
    Meanwhile, silver        lost 0.5 percent to $16.40 per
ounce, earlier touching $16.60, a one-week high.
    Speculators increased their net short position in silver
contracts to a record high in the week to Feb. 27, U.S.
Commodity Futures Trading Commission data showed
    Platinum       , used to reduce emissions in diesel cars,
dropped 0.2 percent to $960.50 per ounce, while palladium       
slipped 0.9 percent to $982.47.
    Pressuring platinum group metals was data showing auto sales
in the United States were lower in February and the mayor of
Rome saying the city would ban diesel cars by 2024, MKS SA
senior precious metals dealer Alex Thorndike said.

 (Additional reporting by Eileen Soreng in Bengaluru
Editing by David Evans, Jane Merriman and Jonathan Oatis)