* Spot gold could test resistance at $1,237/oz -technicals
* Dollar index .DXY drops to six-week low
* SPDR gold holdings down 0.35 pct on Friday (Adds comments, updates prices, adds NEW YORK dateline)
By Devika Krishna Kumar and Maytaal Angel
NEW YORK/LONDON, March 20 (Reuters) - Gold prices edged higher to a two-week peak on Monday as the dollar slid to a six-week low after a G20 weekend summit dominated by the U.S. administration's protectionist stance.
The precious metal has been rising since Wednesday, when the dollar dropped after the Federal Reserve raised U.S. interest rates but stopped short of predicting a sharper acceleration in monetary tightening over the next two years.
The dollar fell to a six-week low before recovering to trade 0.1 percent higher .DXY against a basket of currencies. USD/
Gold is sensitive to falling interest rates, which reduces the opportunity cost of holding non-yielding bullion.
"I think gold prices are going to continue to rally and the target to the upside is $1,250," said Phillip Streible, senior commodities broker for RJO Futures in Chicago.
"I don't anticipate that the Fed will be so aggressive on raising rates ... and there's a lot of uncertainty with Brexit becoming official later on in the month and there's a lot of questions circulating around Russia."
Markets had been volatile as FBI Director James Comey spoke on Monday, confirming the agency was investigating possible Russian government efforts to interfere in the 2016 U.S. election including any links between President Donald Trump's campaign and Moscow. gold XAU= rose 0.44 percent to $1,233.92 an ounce by 2:14 EDT (1814 GMT), after touching $1,235.50, its highest since March 6.
U.S. gold futures GCcv1 gained 0.3 percent to settle at $1,234.00.
Breaking a decade-long tradition of endorsing open trade, G20 finance ministers and central bankers made only a token reference to trade at the weekend, acquiescing to an increasingly protectionist United States. markets balked at the move which soured risk appetite, pressuring stocks, the dollar and oil and driving investors into safe-haven gold. MKTS/GLOB
The precious metal has rebounded more than $35 from the low hit before the Fed policy announcement last Wednesday, while the dollar has fallen 1.7 percent.
"The dovish outlook ... following last Wednesday's Fed meeting is clearly still having an impact. This is likely to lure a number of speculative financial investors back into gold after this group massively reduced their net long positions in the run-up to the meeting," Commerzbank (DE:CBKG) said.
Money managers reduced their net long, or buy, positions in gold by 44,058 lots to 49,835 lots during the week to March 14, the lowest since early January. CFTC/
Spot gold is expected to test resistance at $1,237, a break above which could lead to gains to $1,243, Reuters technical analyst Wang Tao said. the bullish gold narrative, holdings of SPDR Gold GLD , the world's largest gold-backed exchange-traded fund, fell 0.35 percent to 834.10 tonnes on Friday. silver XAG= rose 0.3 percent to $17.37 an ounce, while platinum XPT= was up 1.2 percent at $969.70 and palladium XPD= firmed by 1.1 percent to $781.20.
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