Gold dips to near 2-week low as risk-on mode dominates

Gold prices fell to their lowest in nearly two weeks on Tuesday as risk appetite was whetted by stronger-than-expected China economic data and the imminent signing of a preliminary US-China trade deal.

Spot gold dipped 0.6 per cent to $1,538.84 per ounce by 0459 GMT. Earlier in the day, prices touched their lowest since January 3 at $1,535.75. US gold futures fell 0.7 per cent to $1,539.70.

Asian shares rallied amid signs of goodwill between the world's two top economies as they prepared to sign a truce in their 18-month-long tariff dispute that has upended the global economy.

“It is mainly because of increased risk appetite and the US removing China's label as a currency manipulator that has greatly eased any economic tensions between these two countries,” said Helen Lau, analyst at Argonaut Securities.

Just a day before the Phase 1 trade deal signing, the US Treasury on Monday dropped China's designation as a currency manipulator, signalling a further thawing of relations.

US Trade Representative Robert Lighthizer said the Chinese translation of the deal was nearly done and would be made public prior to the signing ceremony on Wednesday. However, concerns remained that this is not an end to the trade war that has roiled global markets over the past one and a half years.

Data out of China showed exports rose for the first time in five months in December, while imports also surpassed expectations. Stronger-than-expected import and export numbers showed stabilisation of the Chinese economy - a very positive sign for global economic growth, Argonaut Securities' Lau said.

Gold prices gained 18 per cent last year mainly driven by the tariff dispute and its impact on the global economy. “With such strong global growth sentiment evident in markets around the world, and a lack of geopolitical tensions to give support, gold's price erosion is likely to continue,” Jeffrey Halley, senior market analyst, OANDA, said in a note.

On the interest rate front, US Federal Reserve officials may broadly agree that rates are unlikely to change soon, but they differed Monday on how concerned they are about developing financial risks in assessing when a hike might be appropriate.

Gold is highly sensitive to any reduction in interest rates that reduces the opportunity cost of holding non-yielding bullion. Spot gold may fall towards $1,524 per ounce, according to Reuters technical analyst Wang Tao.

Elsewhere, silver was down 1 per cent to $17.78 per ounce, having hit its lowest since late December at $17.71 earlier in the session. Palladium fell 0.1 per cent to $2,129.92 an ounce, while platinum slipped 0.6 per cent to $968.01.