LONDON, Aug 27 (Reuters) – Gold inched lower as the dollar firmed on Monday, reversing some of the previous session’s gains which came after the U.S. Federal Reserve chairman reiterated the central bank’s intention to raise interest rates further, albeit at a gradual rate. Spot gold was down 0.2 percent at $1,204.76 per ounce at 1116 GMT while U.S. gold futures were down 0.2 percent at $1,210.60 an ounce. Fed chairman Jerome Powell’s remarks on Friday did not change market expectations for further monetary tightening despite opposition from President Donald Trump. But the market interpreted Powell’s speech as dovish after he said a gradual approach to raising rates remained appropriate to protect the U.S. economy, keep job growth strong and inflation under control. That pushed gold up 1.7 percent on Friday in its biggest one-day percentage gain since May 2017. But prices remained capped as higher rates, even if they come at a gradual pace, raise the opportunity cost of holding gold, which can be costly to store and insure. “Our reading is that we still expect two more hikes this year and that should be the important thing near term for gold… next year the Fed is still likely to continue hiking,” said Danske Bank senior analyst Jens Pedersen. The dollar index, which tracks the greenback against a basket of six major currencies, was up 0.1 percent. A weaker U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand and prices. ActivTrades chief analyst Carlo Alberto De Casa said if prices hold at $1,200 an ounce, there is a good chance of further gains, with a target of $1,230/$1,235. He added that below $1,200, the bearish trend could recover strength, with a first targeted support area at $1,180. Hedge funds and money managers increased their net short position in COMEX gold contracts to another record in the week to Aug. 21. Gold’s jump in the previous session could have triggered some short covering, preventing further losses, analysts said. “While the speech was a tad dovish, gold’s resurgence may be as much position-related as it is a real demand, given the extended short positions that have been built up over the past few weeks which resulted in several stop loss runs getting triggered,” said Stephen Innes, APAC trading head, OANDA. Higher activity in gold options amid geopolitical tensions and a record-long bull market for U.S. equities suggest that investors are betting gold prices have found a floor, traders said. Among other precious metals, spot silver was down 0.2 percent at $14.760 an ounce, while platinum was down 0.4 percent at $787. Palladium was flat at $936 an ounce after touching a one-month high of $940.50 earlier in the session.