PRECIOUS-Gold slips on Fed policy tightening bets

US business activity raced to a more than five-year high in September, data on Wednesday showed, though strong demand strained supply chains and pushed prices higher.

"In our baseline scenario, we expect precious metals to lack clear direction, although volatility is likely to remain high. Gold could continue to trade for a couple of quarters near an average of $4,200 per ounce," Intesa Sanpaolo economist Daniela Corsini said in a note.

Among other metals, spot silver XAG= fell 0.8% to $63.94 per ounce, platinum XPT= lost 0.2% to $1,746.02 and palladium XPD= gained 0.4% to $1,265.51.

Sept. 24 (Reuters) - Gold prices drifted lower on Thursday as expectations that the US Federal Reserve could tighten policy further weighed on the non-yielding metal.

Spot gold XAU= fell 0.3% to $4,274.79 per ounce, by 0702 GMT. US gold futures GCcv1 for December delivery fell 0.2% to $4,309.80.

"Investors are currently focused on the Fed's higher-for-longer stance following last week’s rate increase, fluctuations in the US dollar and Treasury yields, and Middle East developments related to oil and energy supply risks," said Ross Maxwell, chief strategy officer, VT Markets.

"A clearer signal of another rate hike would pressure gold lower."

Oil prices extended gains after climbing 4% in the previous session as diplomatic talks between the United States and Iran showed no concrete sign of progress. O/R

Mounting US inflation pressures and a strengthening economy appear to be pushing the Fed towards a rate hike on the eve of critical national elections, with traders piling into bets on a second straight policy tightening in late October. FEDWATCH