* Markets focus on Britain's EU vote on Thursday
* Yellen reiterates cautious stance on U.S. rate hike
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, June 22 (Reuters) - Gold fell to a two-week low on Wednesday after its biggest one-day drop in four weeks, as expectations that Britain will vote to remain in the European Union reduced risk aversion and lent a firmer tone to stocks.
The metal fell nearly 2 percent on Tuesday after two opinion polls suggested it was likely that voters would opt on Thursday to stay in the EU. Concerns over a possible vote in favor of leaving had sent gold to a near two-year high last week.
"Gold seems to have fully discounted and is anticipating that it will be a 'no' vote. That seems to be the driving force," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors.
"I don't think gold will go down much if the 'no' vote prevails. I do think it will go up significantly if we do get a 'yes' vote."
Spot gold XAU= hit a two-week low of $1,261.01 an ounce and was down 0.1 pct at $1,266.60 an ounce by 2:35 p.m. EDT (1835 GMT), little changed from late on Tuesday. U.S. gold futures GCv1 for August delivery settled down 0.2 percent at $1,270 an ounce.
"The CFTC (Commodity Futures Trading Commission) on Friday evening reported record high net long positions in gold," Commerzbank (DE:CBKG) analyst Daniel Briesemann said.
"What we now see is that, due to a change in public opinion with regard to the Brexit vote tomorrow, speculators are closing long positions to limit losses," he said. "That's weighing on the price at the moment, as a possible Brexit scenario is still being priced out."
Stocks and sterling rose as investors grew more optimistic Britain would vote to remain in the European Union in Thursday's referendum. MKTS/GLOB
A vote to leave the 28-member bloc could tip Europe back into recession, putting more pressure on the global economy and increasing the appeal of bullion as a counter-cyclical asset, analysts said.
Investors are also keeping an eye on the path of U.S. interest rates. Federal Reserve chair Janet Yellen said on Tuesday that the Fed's ability to raise interest rates this year may hinge on a rebound in hiring. in the world's largest gold-backed exchange-traded fund, SPDR Gold shares GLD , rose 0.39 percent to 912.33 tonnes on Tuesday, the highest since September 2013. GOL/ETF
Among other precious metals, silver XAG= was down 0.03 pct at $17.26 an ounce, while platinum XPT= was up 0.03 pct at $976 and palladium XPD= was up 1.5 pct at $558.75.
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