* Palladium hits highest since Feb. 27
* Speculators raise net shorts in COMEX Gold
* U.S. Fed's two-day policy meeting starts on Tuesday
(Adds Commerzbank comments, updates prices)
Spot gold was up 0.1 percent at $1,200.03 an ounce by 1220 GMT, after declining as much as 1.3 percent on Friday.
U.S. gold futures were up 0.2 percent at $1,204 an ounce. Liquidity was thin during Asian trading hours on Monday as markets in Japan and China were closed for a holiday.
"Gold is lacking any strong driver at the moment," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Investors are awaiting details from the two-day Federal Reserve meeting concluding on Wednesday, when the U.S. central bank is widely expected to raise benchmark interest rates and shed light on the path for future rate hikes.
"The question is what kind of wording is going to accompany that hike. Based on that, gold is unlikely to make much of a move ahead of that meeting," Hansen said.
"The risk to the dollar is some additional weakness, but at this stage we have to maintain a neutral stance. There isn't much point chasing a market stuck in a $20 range."
Gold has fallen more than 12 percent since a peak in April against a backdrop of trade disputes and as rising U.S. interest rates diminish demand for non-interest bearing bullion.
The dollar index also failed to show clear direction, with the currency strengthening in Asian trade on news that China had cancelled trade talks with the United States. But the dollar was down 0.2 percent in European trade.
The United States and China imposed fresh tariffs on each other's goods on Monday as the world's biggest economies showed no signs of backing down from a trade dispute that is expected to knock global economic growth.
Meanwhile, speculators increased their net short position in COMEX gold contracts in the week to Sept. 18, U.S. data showed on Friday.
"The price would rise noticeably if sentiment were to turn and short positions were to be covered. This may happen following the Fed rate hike expected on Wednesday, as gold has often gained following a Fed rate hike in the past," Commerzbank said in a note.
Among other precious metals, spot silver rose 0.3 percent to $14.30 an ounce. Platinum added 0.3 percent to $829.30, after hitting its highest in six weeks at $838.40 on Friday.
Palladium gained 0.7 percent to $1,056.80 an ounce after hitting a high of $1,060, the highest since Feb. 27.
(Additional reporting by Nallur Sethuraman in Bengaluru. Editing by Jane Merriman and Louise Heavens) ((firstname.lastname@example.org; +44 20 7542 7093; Twitter ; Reuters Messaging: email@example.com))