Gold holds firm as souring trade spat hurts risk appetite

• Lower interest rates generally lessen the opportunity cost of holding non-yielding gold and weigh on the dollar.
• U.S. gold futures gained 0.5pc to $1,511.60 per ounce.

Gold prices on Wednesday held onto the previous session's gains, as sagging hopes for progress in U.S.-China trade negotiations sapped risk appetite, with markets watching closely for clues on monetary easing by the U.S. Federal Reserve.

Spot gold rose 0.1pc to $1,506.06 per ounce by 0526 GMT, but stood its ground above $1,500 after jumping as much as 1pc in the previous session.

U.S. gold futures gained 0.5pc to $1,511.60 per ounce.

"The market is holding back, and looking at what's going to happen in the U.S.-China trade talks on Thursday... If the trade dispute turns worse, we are going to expect some strong risk-off trade," said Phillip Futures analyst Benjamin Lu.

"The players who were short, rolled back on their positions. We are also seeing some weakness on the equity side."

The United States on Tuesday imposed visa restrictions on Chinese officials for the detention or abuse of Muslim minorities, angering Beijing ahead of high-level trade talks on Thursday and Friday, and sending Asian stocks lower.

U.S. President Donald Trump has said tariffs on Chinese imports will rise on Oct. 15 if no progress is made in the negotiations.

Alongside, the U.S. Treasury yield curve steepened in Asia after Federal Reserve Chair Jerome Powell signalled further interest rate cuts and the resumption of bond purchases to address a recent spike in money market rates.

Lower interest rates generally lessen the opportunity cost of holding non-yielding gold and weigh on the dollar.

"With the latest QE-lite measures, we expect inflow of funds into gold-backed ETFs to continue, which is likely to push gold prices higher.

We maintain that gold prices may test as high as $1,600/oz in this period of uncertainty," OCBC Bank said in a research note.

Fuelling gold's appeal was also a report that British Prime Minister Boris Johnson is facing a fresh rebellion in his cabinet, with a group of ministers poised to resign due to concerns that he is leading the country towards a no-deal Brexit.

Signals are mixed for spot gold, as it failed to break a support at $1,488 per ounce, said Reuters market analyst, Wang Tao.

Meanwhile, silver inched 0.3pc higher to $17.77 an ounce, while platinum rose 0.3pc to $892.75. Palladium  declined 0.1pc to $1,673.42 an ounce.