(Recasts throughout; updates prices, headline; adds comment,NEW YORK to dateline)
* Concerns persist over impact of Italy poll outcome on EU
* Silver net shorts at record high
* Platinum, palladium dip on lower demand from U.S.
By Renita D. Young and Zandi Shabalala
NEW YORK/LONDON, March 5 (Reuters) - Gold prices dropped onMonday as a stronger dollar outweighed the impact ofuncertainty created by Italy's election result and fears of apossible global trade war.
Spot gold XAU= lost 0.2 percent to $1,319.82 per ounce by1:38 p.m. EST (1838 GMT), after touching its highest since Feb.27 at $1,327.86.
U.S. gold futures GCcv1 for April delivery settled down$3.50, or 0.3 percent, at $1,319.90 per ounce.
"What might be supporting the dollar: expectations of Fedrate hikes have really increased over the last week or so," saidDaniel Ghali, commodity strategist at TD Securities, after newChair Jerome Powell's testimony indicated his optimistic outlookon the U.S. economy and opened the door for four interest ratehikes.
The U.S. dollar index .DXY , which measures the greenbackagainst major currencies, gained 0.2 percent, having touched itslowest in almost a week earlier in the session FRX/
But support for gold came from U.S. President Donald Trump'sannouncement last week that the country would levy hefty tariffson aluminum and steel imports. This was followed by threats ofretaliation from the European Union and Canada. USD/ Italy, voters delivered a hung parliament on Sunday and
if early projections are confirmed, none of Italy's three maingroups will be able to rule alone and there is little prospectof a return to mainstream, moderate government. is supported because of the talk of trade wars.Whether they will occur or not will increase the probability ofa policy mistake from the Fed that would obviously be bullishfor gold," Ghali added.
Gold is often seen as an alternative investment during timesof geopolitical and financial uncertainty, benefiting along withother safe-haven assets such as the Japanese yen and U.S.Treasuries while stocks tend to trend lower. MKTS/GLOB
The market was anticipating the release of U.S. payroll dataon Friday which will help guide interest rate expectations.
Meanwhile, silver XAG= lost 0.5 percent to $16.40 perounce, earlier touching $16.60, a one-week high.
Speculators increased their net short position in silvercontracts to a record high in the week to Feb. 27, U.S.Commodity Futures Trading Commission data showedFriday. XPT= , used to reduce emissions in diesel cars,dropped 0.2 percent to $960.50 per ounce, while palladium XPD= slipped 0.9 percent to $982.47.
Pressuring platinum group metals was data showing auto salesin the United States were lower in February and the mayor ofRome saying the city would ban diesel cars by 2024, MKS SAsenior precious metals dealer Alex Thorndike said.