Gold gains as dollar demand eases, markets discount trade dispute

LONDON: Gold bounced on Wednesday as investors shrugged off concerns about the U.S.-China trade war and the dollar weakened, luring some buyers back into the market.

Spot gold climbed 0.5 percent to $1,202.96 an ounce by 1000 GMT after going into the red on Tuesday.

U.S. gold futures were up 0.4 percent at $1,207.60 an ounce.

"Somehow the commodity markets have learned to ignore the trade war, but there will be more noise from this theme, so it remains an uncertain element," said Norbert Ruecker, head of commodity research at Julius Baer in Zurich.

China said on Wednesday it will not stoop to competitive devaluation of its currency, hours after it hit back with a softer punch than the one landed by the United States in an escalating tariff dispute.

Gold prices have declined about 12 percent since April, hurt by the intensifying U.S.-China trade dispute and on rising U.S. interest rates.

Investors have been buying the dollar in the belief the United States has less to lose from the dispute. But a spot of weakness in the dollar may indicate investors are starting to worry about the impact of the tariffs on the U.S. economy.

"It appears that investors are beginning to view tariffs - while likely negative for China's exports - could also prove detrimental to the United States as well, given the disruptive impact on global supply chains," said John Sharma, an economist at National Australia Bank.

The dollar index, which measures the greenback against a basket of major currencies, fell 0.2 percent.

While a strong U.S. economy, rising U.S. interest rates and the rumbling trade dispute may weigh on gold in coming weeks, the market has bottomed out and the long-term direction is higher, Ruecker said. Julius Baer has targeted gold to climb to $1,275 in three months and $1,375 in 12 months.

"Overall, we are constructive for gold and we are telling our clients to start to build a long-term position. Negative sentiment and positioning looks like it has hit rock bottom, so this will start normalising and support gold."

Meanwhile, liquidations in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued as holdings fell 0.3 tonne to 742.23 tonnes on Tuesday.

Among other precious metals, spot silver rose 0.3 percent to $14.17 an ounce.

Platinum gained 0.5 percent to $813.74, after hitting its highest since Aug. 13 at $821.60 earlier in the session.

Palladium added 0.4 percent at $1,013.10, after marking its highest since June 14 at $1,015.50.