PRECIOUS-Gold eases after surprise U.S. CPI jump, holds above $1,400/oz

* Analyst sees gold's decline as a kneejerk reaction by
market
* Palladium erases gains after hitting 16-week high

(Updates prices)
By Karthika Suresh Namboothiri
July 11 (Reuters) - Gold prices slumped 1% on Thursday,
erasing gains posted earlier in the session after
stronger-than-expected consumer inflation in the United States
cast doubts whether the U.S. central bank will cut interest
rates as aggressively as expected.
Spot gold XAU= shed 1% to $1,404.40 per ounce as of 1:30
p.m. EDT (1730 GMT), dropping nearly $15 after U.S. consumer
prices demonstrated a pick-up in underlying inflation,
increasing in June by the most in nearly 1-1/2 years. U.S. gold futures GCcv1 settled 0.4% lower to $1,406.70
per ounce.
Gold prices had touched a one-week high of $1,426 earlier in
the session.
The Federal Reserve last month downgraded its U.S. inflation
projection for 2019 to 1.5% from the 1.8% projected in March.
However, this may probably not change expectations the U.S.
central bank will cut interest rates this month.
"We saw today's inflation data - the markets started to back
off today because it challenges the need for additional rate
cuts," said Chris Gaffney, president of world markets at TIAA
Bank, calling bullion's decline a kneejerk reaction.
Thursday's move "is just an adjustment of the fact that
maybe it had gone up a little fast yesterday, but is still
holding nicely above $1,400, and it looks like we going to
continue holding above $1,400," he added.
Spot gold rose 1.5% on Wednesday after Fed Chair Jerome
Powell's dovish remarks, where he confirmed the U.S. economy was
still under threat from disappointing factory activity, tame
inflation and a simmering trade war, and said the Fed stood
ready to "act as appropriate." This statement weighed on the dollar. The U.S. currency
against major other currencies .DXY was largely tepid for a
second session. USD/
Policymakers from the U.S. central bank are scheduled to
meet on July 30-31, where investors will look for further cues
on monetary policy easing.
Gold in June rallied to a six-year peak of $1,438.63 an
ounce, largely on the back of expectations of rate cuts by key
central banks amid concerns over the global economy.
"A break above $1,438 may lead to further buying orders with
$1,500 being the next level traders looking to target," Hussein
Sayed, chief market strategist at FXTM, wrote in a research
note.
Indicative of investor sentiment, holdings of SPDR Gold
Trust GLD , the world's largest gold-backed exchange-traded
fund, rose 0.8% on Wednesday. GOL/ETF
Among other precious metals, palladium XPD= erased gains
and dipped 1.7% to $1,561.86 per ounce, having earlier hit a
high of $1,605.52.
Silver XAG= was down 0.9% to $15.10, while spot platinum
XPT= dipped 0.8% to $818.