* Citi lowers 2021 gold price forecast * Dollar index holds near four-week peak * Silver drops to over one-month low (Updates prices) By K. Sathya Narayanan March 2 (Reuters) - Gold prices edged up on Tuesday, having earlier slid to its lowest in 8-1/2 months, as U.S. Treasury yields eased and offset pressure from a stronger dollar. Spot gold was up 0.3% at $1,728.09 per ounce by 1324 GMT, after falling to $1,706.70, its lowest since June 15. U.S. gold futures rose 0.6% to $1,733.30 per ounce. "We have a bit of a pause in the (rally) in U.S. yields now," said ABN Amro analyst Georgette Boele. There is some nervousness in the market as investors were aggressively long in gold and bought it at higher prices, betting that prices would revisit the highs around $2,000, which hasn't happened yet, Boele added. Benchmark U.S. Treasury yields have eased off a one-year high hit last week, while the dollar index held near a four-week peak. "The strength of the greenback is increasing the bearish pressure on gold," ActivTrades chief analyst Carlo Alberto De Casa said in a note. While gold is considered a shield against inflation, higher yields had threatened that status as they increase the opportunity cost of holding bullion. "Diversification out of fixed income into gold can continue, especially if the focus around inflation overshoot risks increases," Goldman Sachs Commodities Research said in a note dated Monday. Focus also remains on the developments of the $1.9 trillion stimulus bill that will be debated in the U.S. Senate this week. Citi analysts lowered their 2021 gold price forecast to $1,800 per ounce and said that "spot bullion holding support at $1,750-$1,765 appears critical to avoid a sharper sell-off amid higher U.S. yields." Silver fell 0.5% to $26.34 an ounce, having earlier dipped to a more than one-month low. Palladium was up 0.4% at $2,359.25 an ounce, while platinum eased 0.5% to $1,178.83. (Reporting by K. Sathya Narayanan in Bengaluru; editing by David Evans and Jason Neely)
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