By Clara Denina
LONDON (Reuters) - Gold fell on Wednesday as the dollar hit a three-week high after strong U.S. economic data and comments from Federal Reserve officials bolstered expectations that the central bank could soon hike interest rates.
A Fed policymaker said on Tuesday he will push for an interest rate hike in June or July, and two others predict up to three rate increases this year.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding it.
Spot gold dipped 0.4 percent to $1,274.50 an ounce at 1153 GMT, while U.S. gold futures fell 0.1 percent to $1,276.20.
U.S. data on Tuesday showed consumer prices recorded their biggest increase in more than three years in April. Housing starts and industrial production rebounded strongly last month, suggesting the economy was regaining steam, adding to the case for an early rate hike.
"The dollar is getting some attention today following the CPI data, and that's likely to weigh on gold in the short term," Saxo Bank senior manager Ole Hansen said.
"However, if inflation is really starting to make a return and that dollar strength starts being driven by inflation concerns, there is a positive story for gold in the longer term," Hansen added.
Gold is usually seen as an hedge against inflation.
Bullion has rallied 20 percent this year on speculation that the Fed has slowed down its expected pace of rate increases on concerns about global economic growth and the volatility of stock markets.
In its April policy statement, the Fed indicated it wants to feel more confidence in the economy's overall health before hiking rates again.
Traders will scrutinise the Fed's April meeting minutes, due later on Wednesday, for further cues on the U.S. interest rate outlook.
"A lot of investors are holding back waiting for the FOMC minutes," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
"Officials have been saying they wish to raise the rates but unless and until Fed Chair Janet Yellen mentions something I don't think the market will actually take that into consideration," he added.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.56 percent to 855.89 tonnes on Tuesday, the highest since November 2013. [GOL/ETF]
Spot silver slipped 1.2 percent to $17.03 per ounce, spot platinum dropped 0.7 percent to $1,042 per ounce and spot palladium fell 0.7 percent to $578.50 an ounce.
(Additional reporting by Koustav Samanta in Bengaluru, editing by William Hardy)
