* Prices rise back towards Monday's five-month peak
* Specs trim net short positions in gold in week to Dec. 4
* Gold priced in various currencies: http://tmsnrt.rs/1JxbO6Y
By Swati Verma
BENGALURU, Dec 11 (Reuters) - Gold firmed on Tuesday as expectations that the U.S. Federal Reserve may slow its interest rate hike trajectory next year weighed on the dollar and stoked interest in bullion, which as a non-yielding asset tends to suffer from rising rates.
Spot gold XAU= was up 0.3 percent at $1,247.68 per ounce, as of 1239 GMT. It touched its highest since July 11 at $1,250.55 in the prior session.
U.S. gold futures GCv1 were 0.3 percent higher at $1,253.10 per ounce.
"Fed funds futures pricing has been reducing the market expectations for hikes over the next 18 months and that has been coming through in a slightly softer dollar and a stronger gold price," said Marcus Garvey, analyst at ICBC Standard bank.
"As real interest rates in the U.S. approach a neutral level, we think the Fed is going to get incrementally cautious and won't be hiking rates in such a metronomic fashion. In light of that, we think prices could rally back into the high $1,200s."
The U.S. Federal Reserve is widely expected to raise rates at its Dec. 18-19 meeting, but the market is focusing on how much further it might lift rates next year.
Based on prices of Fed fund futures, traders now see a 73 percent chance of a rate hike next week, and just a 49 percent chance of a further hike by the end of next year. also kept a close eye on developments surrounding Britain's departure from the European Union after the country's prime minister postponed a vote on her deal.
"Postponing the vote – probably until mid-January – means that the UK government has even less time for the entire Brexit procedure. Most importantly, it means continued uncertainty, which should keep demand for gold at a high level," Commerzbank (DE:CBKG) analysts said in a note.
Gold in sterling terms XAUGBP=R reached its highest since September 2017 on Monday at 996.27 pounds an ounce.
Spot prices of the precious metal, seen as a safe investment during uncertain times, have risen about 8 percent from a low of $1,159.96 in mid-August.
Meanwhile, hedge funds and money managers trimmed their net short positions in Comex gold contracts in the week to Dec. 4, data showed on Monday. CFTC/
"There remains significant scope for the market to further increase long positions and to further reduce short positions. A weaker dollar, driven by moderating Fed policy, could provide the market with the necessary impetus," Societe Generale (PA:SOGN) said in a note.
Among other precious metals, palladium XPD= was trading at a premium to gold prices, up 2.6 percent to $1,249.03 an ounce.
Spot silver XAG= rose about 1 percent to $14.67 per ounce. Platinum XPT= inched 0.1 percent higher to $786.30 per ounce. Prices had slipped to their lowest since Sept. 10 at $773.50 in the previous session. ($1 = 0.7857 pounds)