* Chinese markets shut this week
* Palladium down, drifting away from last session's 8-month peak
By Vijaykumar Vedala
BENGALURU, Oct 1 (Reuters) - Gold prices dipped on Monday as the dollar firmed against its peers in the wake of indications from the U.S. Federal Reserve last week that it will pursue a tighter monetary policy.
The Fed raised U.S. interest rates last week and said it planned four more increases by the end of 2019 and another in 2020, amid steady economic growth and a strong job market. U.S. interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.
Spot gold XAU= was down 0.5 percent at $1,186.29, as of 0748 GMT. In the previous session, gold touched its lowest since Aug. 17 at $1,180.34 an ounce.
U.S. gold futures GCcv1 slipped 0.5 percent to $1,190.60 an ounce.
"Gold prices remain dependent on the dollar at this juncture. The U.S. economy has been rosy and better than expected. Efforts by the Trump administration to reduce the trade deficit from an economic point of view has been friendly for the greenback as well," OCBC analyst Barnabas Gan said.
Gold prices are likely to see lower volatility, with the Chinese markets closed for a week, for the Golden Week celebration, Gan said.
The dollar index .DXY was up 0.1 percent versus a basket of major currencies, and hovered close to a near three-week high hit in the previous session.
Gold has fallen about 13 percent from an April high, largely because of the stronger dollar, which has been boosted by a vibrant U.S. economy and fears of a global trade war. Investors have bought the greenback instead of gold as a safe investment.
Meanwhile, the United States and Canada forged a last-gasp deal on Sunday to salvage the North American Free Trade Agreement (NAFTA) as a trilateral pact with Mexico, rescuing a three-country, $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century. NAFTA has not had any immediate response on gold. But in the longer-term it should be good for the dollar," said Benjamin Lu, commodities analyst at Phillip Futures.
"There is still a lot of downward pressure for gold ... The widening of interest rate differentials, and the upward trend in U.S. economic performance are weighing on gold. At least in this quarter, fundamentally it is very difficult to long gold."
Gold speculators raised their net short position by 2,923 lots to 77,313 lots, the largest in three weeks, in the week to Sept. 25, U.S. Commodity Futures Trading Commission (CFTC) data showed. other precious metals, palladium XPD= dropped 0.7 percent to $1,065.22, after touching an eight-month high of $1,094.60 an ounce in the previous session.
Silver XAG= slipped 0.3 percent to $14.56 per ounce, while platinum XPT= fell 0.2 percent to $810.65 per ounce.