* Spot gold faces strong resistance at $1,291/oz - technicals
* Dollar rises from previous week's four-month lows versus yen
* Fed's Dudley: supports interest rate rise if economy evolves
By Devika Krishna Kumar and Maytaal Angel
NEW YORK/LONDON, Aug 14 (Reuters) - Gold prices fell by half a percent on Monday, retreating from last week's two-month highs, as dollar strength and the easing of tensions between the United States and North Korea pushed prices lower.
Though North Korea's Liberation Day celebration on Tuesday could raise the temperature again, markets were relieved that the weekend passed without more inflammatory rhetoric. the dollar broadly rose from last week's four-month lows against the yen and traded up against a basket of currencies, making dollar-priced gold costlier for non-U.S. investors. FRX/
"A lot of the negative news is priced into the dollar. That, combined with no real escalation in North Korea, should lead to lower gold prices, though it doesn't mean we expect a very negative trend. We'll stay within the $1,200 to $1,300 range for the year," said ABN Amro strategist Georgette Boele.
Spot gold XAU= fell 0.6 percent to $1,281.21 an ounce by 2:33 p.m. EDT (1833 GMT), having reached its highest since June 7 at $1,291.86 in the previous session.
U.S. gold futures GCcv1 for December delivery fell 0.3 percent to settle at $1,290.40.
"Although more aggressive rhetoric between the U.S. and North officials would temporarily boost gold prices, we see outright military action as unlikely and upward pressure on gold prices stemming from the confrontation as limited," said BMI Research in a note.
"Looking longer-term, we expect that prices will eventually resume their medium-term uptrend, buoyed by a relapse in US real interest rates."
Consumer prices in the United States rose less than expected last month, data showed on Friday, suggesting benign inflation that could persuade a cautious Federal Reserve to delay raising interest rates until December. York Fed President William Dudley said on Monday that market expectations that the U.S. central bank would begin trimming its balance sheet were not unreasonable. U.S. Treasury yields returned to session highs in midafternoon trading after he told the Associated Press he supported another rate increase this year if the economy improves further. is highly sensitive to rising interest rates because they increase the opportunity cost of holding non-yielding bullion.
Hedge funds and money managers boosted their net long, or buy, position in COMEX gold for the fourth straight week to a near two-month high in the week to Aug. 8, data showed on Friday. gold faces strong resistance at $1,291 an ounce and could hover below this level or retrace to support at $1,278, Reuters technical analyst Wang Tao said. XAG= fell 0.1 percent to $17.05 per ounce, having climbed last week to its highest since mid-June.
Platinum XPT= fell 1.2 percent to $968.20 after hitting a five-month high on Friday, while palladium XPD= rose 0.4 percent to $895.78.