By Pratima Desai
LONDON (Reuters) - Gold prices held near seven-month highs on Wednesday with sentiment still bullish due to political uncertainty created by an election in Britain and testimony by a former FBI director to the U.S. Senate.
However, bullion came under some pressure after the dollar rose against the euro due to reports that the European Central Bank was preparing to cut its inflation forecasts on Thursday.
A rising U.S. currency makes dollar-denominated gold more expensive for holders of other currencies, potentially subduing demand.
Spot gold was down 0.2 percent at $1,291.1 an ounce at 1345 GMT. On Tuesday, it gained 1.1 percent to hit its highest level since November last year at $1,295.97. U.S. gold futures slipped 0.2 percent to $1,294.2.
"Gold is being driven by ... U.S. politics and the UK election," said SP Angel analyst John Meyer. "Indian tax changes over the weekend could increase demand for tola bars."
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Tola is a traditional Indian measurement unit of 0.375 troy ounces. India last weekend said it would tax gold at 3 percent under a new sales levy that comes into effect on July 1, lower than the 5 percent tax expected.
In the United States, former FBI director James Comey's testimony on Thursday could further hurt President Donald Trump and potentially derail his plans to roll back regulation and overhaul taxes.
In Britain, markets are worried the ruling Conservative party might not get a majority in Thursday's elections. Prime Minister Theresa May wants to increase her majority to strengthen Britain's hand in exit talks with the European Union.
Traders are also looking ahead to a meeting of the U.S. Federal Reserve next week.
"We do expect gold to hit some turbulence as we approach the June Fed rate hike, but things could open up for the precious metal post-meeting if the central bank's language remains dovish," said INTL FCStone analyst Edward Meir.
Among other precious metals, platinum fell 0.7 percent to $949.5 an ounce and palladium slid 1.6 percent to $839.5 after earlier touching $859.80 an ounce, its highest since Sept. 2014.
Platinum is used mainly to make autocatalysts for diesel-fuelled cars, while palladium is mainly used for autocatalysts in gasoline-fuelled cars.
"(Palladium has) a much broader exposure to global car markets. According to data from the United States, Europe and Japan, the recent slowdown in sales continued also in May," Julius Baer analysts said in a note.
"We stick to our negative view (on palladium) and short-position, expecting prices to realign with the weaker demand backdrop over the coming months."
Silver was unchanged at $17.67 an ounce.
(Additional reporting by Vijaykumar Vedala and Koustav Samanta; editing by David Clarke and Louise Heavens)
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