Gold rose on Tuesday, on growing fears of a coronavirus resurgence in some countries and prospects of Sino-US tensions flaring further, though gains were capped by a stronger dollar.

Spot gold was up 0.4 per cent at $1,702.69 per ounce by 0804 GMT. US gold futures climbed 0.5 per cent to $1,705.90 per ounce. The new wave of infections is “priced through the fact that markets are looking at negative (US) interest rates,” ANZ analyst Daniel Hynes said, adding that the market was expecting some additional support from the Federal Reserve. However, “we have (also) had a little bit of a rally in the US dollar, which certainly crimps investor appetite.”

Market participants are increasingly becoming anxious about a second wave of infections as more countries around the world gradually ease restrictions in an effort to restart their economies.

The Chinese city of Wuhan, where the pandemic originated, reported its first new cases since its lockdown was lifted - raising concerns about a second wave of infections and sending Asian shares skidding.

China's health authority said the reappearance of local clusters of virus cases in recent days indicate that counter-epidemic measures cannot be relaxed yet.

Meanwhile, the dollar index climbed to a more than two-week high against key rivals on higher safe-haven demand and bond yields, making gold costlier for investors holding other currencies.

Fed officials talked down the prospect of negative rates, after traders in futures tied to the policy rate last week began pricing in -- for the first time ever -- a small chance of negative interest rates next year. Highlighting a strained relationship with China, US President Donald Trump said he was “not interested” in re-negotiating the “Phase 1” trade deal after a Chinese state-run newspaper indicated discontent about it in Beijing.

“The US-China trade issues are back into the picture,” said Hareesh V, head of commodity research at Geojit Financial Services. Japan could end a state of emergency in many regions this week, if new virus infections are under control. Globally, an estimated $15 trillion worth of stimulus has already been unleashed to cushion the blow from the pandemic.

Meanwhile, SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, said its holdings fell 0.05 per cent to 1,081.07 tonnes on Monday. Among other precious metals, palladium slipped 1.5 per cent to $1,866.07 per ounce and silver fell 0.4 per cent to $15.48, while platinum rose 1.3 per cent to $766.89.