Gold edges down as dollar gains on US-China trade war fears

Gold prices edged down on Tuesday as the US dollar firmed on renewed fears of an intensification in the Sino-US trade war and worries over slowing global economic growth.

Investors shunned riskier assets and moved to buy the greenback after Bloomberg reported that Washington is preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between US President Donald Trump and Chinese President Xi Jinping fail to ease the trade war.

A stronger dollar makes bullion more expensive for the holders of other currencies. Spot gold was down 0.1 per cent at $1,227.92 an ounce at 0400 GMT, after falling 0.3 per cent on Monday. US gold futures were up 0.2 per cent at $1,229.80 an ounce.

“There is a little bit of pressure from the dollar for now. But overall gold prices look fundamentally supported. Market sentiment is still very cautious. We feel upside potential for gold at $1,255 is highly possible,” said Benjamin Lu, a commodities analyst with Phillip Futures.

Gold prices have gained about 6 per cent since declining to $1,159.96 an ounce in mid-August, the lowest since January 2017. Choppy sessions in global equity markets last week pushed gold to $1,243.32, its highest since July 17 on Friday.

However, the yellow metal is still down about 10 per cent from its April peak after investors turned to the dollar as a safe-haven as the US-China trade war unfolded against a background of higher US interest rates.

“Gold prices have started to receive some strength, unlike the previous two quarters, from geo-political factors. Dollar potential is still very strong and may limit upside gains for gold prices. But it doesn't look like gold will lose steam due to the dollar vigour for now,” said Lu.

Spot gold may test a support at $1,217 per ounce, a break below which could cause a loss to the next support at $1,208, said Reuters technical analyst Wang Tao.

In the wider markets, Asian shares came under pressure on Tuesday with Chinese markets and the yuan falling.

“The trade war escalation should send equity markets lower and then investors would want to switch from equity into alternative assets which have less downside ... switch to gold for diversification,” said Argonaut Securities analyst Helen Lau.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7 per cent to 24.27 million ounces on Monday, the highest in nearly two months. Among other precious metals, silver rose 0.1 per cent to $14.47 per ounce, while platinum rose 0.4 per cent to $835.50 per ounce.

Palladium, which hit a record $1,150.50 an ounce last week, climbed 0.5 per cent to $1,093.75 per ounce.

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