By Apeksha Nair
(Reuters) - Physical demand ahead of the festival season in India kept gold prices steady on Thursday amid a firm dollar, while markets awaited more direction on a rate hike from the U.S. Federal Reserve.
Bullion is expected to gain over the next few days on account of festival buying in India, the world's second-largest consumer of gold. The metal is traditionally given as a gift during festivals such as Dhanteras and Diwali.
"Investors look to India for signs of increasing physical demand," analysts at Australia's ANZ bank said in a note on Thursday.
Spot gold was down 0.1 percent to $1,265.74 an ounce by 0408 GMT.
U.S. gold futures were little changed at $1,266.30 an ounce.
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"While the Indian physical buying is supporting prices, the liquidation of longs last week has put some break on the upside movement and gold prices will stay within $1,260-$1,280 range for the time being," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"The dollar is a bit stronger and there is no sign of gold going above $1,300 and we are seeing some liquidations in the ETFs," Leung said.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.49 percent to 942.59 tonnes on Wednesday.
"The markets are waiting for the FOMC meeting next week and elections," Leung added.
The Federal Reserve is expected to raise interest rates three times by the end of 2017, Chicago Fed President Charles Evans said earlier in the week, which had sent the dollar rallying to nine-month highs on Monday.
The market will look to the third quarter U.K. GDP data and data from the U.S. due later in the day for the latest economic clues.
The Bank of Japan is likely to abstain from expanding stimulus next week, and a Reuters poll showed the Bank of England is not expected to ease policy until early 2017.
Spot gold is expected to test a support at $1,261 per ounce, with a good chance of breaking below this level and falling more to the next support at $1,251, according to Reuters technical analyst Wang Tao.
Among other precious metals, silver was down 0.1 percent to $17.58 an ounce, while platinum shed 0.5 percent to $957.74. Platinum rose to an over two-week high of $970.80 on Wednesday.
Palladium was up 0.1 percent at $622.50 an ounce.
(Reporting by Apeksha Nair and Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Christian Schmollinger)