Gold turns positive with dollar headwinds still on the radar

CHICAGO/LONDON: Gold prices edged higher as the dollar gave up early gains on Wednesday, but the precious metal is expected to remain weak on rising U.S. interest rates and strong demand for U.S. Treasury bonds as a safe haven from global trade tensions.

The dollar, which hit a three-week high on Monday, lost ground versus a basket of currencies after hitting a key level of resistance.

"The Treasuries came off a bit and sent the dollar near unchanged for the day," said Walter Pehowich, senior vice president of investment services at Dillon Gage Metals.

Spot gold gained 0.2 percent at $1,213.14 per ounce by 2:36 p.m. EDT (1836 GMT), near $1,204 hit last week, its lowest since March 2017. U.S. gold futures settled up $2.70, or 0.2 percent, at $1,221 per ounce.

Prices are down more than 10 percent since April.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies, subduing demand. This relationship is used by funds to generate buy and sell signals from numerical models.

"The Fed is going to raise rates further this year, that will push up the dollar, a negative for gold," said Quantitative Commodity Research analyst Peter Fertig.

The U.S. Federal Reserve is expected to tighten credit twice more this year and three times in 2019. The next policy meeting is in September.

Higher interest rates raise the opportunity cost of holding gold, which earns nothing and costs money to store and insure.

An escalation in global trade tensions would trigger further moves into U.S. Treasuries, commonly regarded as the ultimate safe haven, said Fertig, noting that dollars are needed to buy Treasuries.

The first support level for gold is seen at $1,200 per ounce, followed by $1,195, near the March 2017 low. Resistance is at $1,225, the 21-day moving average.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, are at their lowest since August 2017.

Silver rose 0.6 percent to $15.42 an ounce, platinum  gained 0.7 percent at $831.70. Palladium declined 0.6 percent to $900.90 per ounce, after sinking to $889.90, its lowest since July 23.