Gold prices gained on Tuesday after a steep fall in the previous session, as investors fretted about an economic slowdown amid weak global manufacturing data and US-European trade ructions. Spot gold was up 0.6% at $1,392.91 per ounce at 0733 GMT, after falling 1.8% in the previous session, its biggest one-day percentage decline since November 2016. US gold futures were up 0.4% to $1,395 an ounce.
"The trade conflict is back to the centre stage today and the participants have shifted from US-China to U.S and the European Union," said Margaret Yang Yan, a market analyst at CMC Markets. The United States on Monday ratcheted up pressure on Europe in a long-running dispute over aircraft subsidies, threatening tariffs on $4 billion of additional EU goods, on top of products worth $21 billion that were announced in April.
The market will now focus on US non-farm payrolls data due on Friday, which should help investors better assess whether the Federal Reserve will cut interest rates later this month. "The non-farm payrolls data will be the signpost for a 25 or 50 basis point cut by the central bank... But even a 25 basis point cut is supportive in the medium-term for gold," said Stephen Innes, managing partner at Vanguard Markets.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies. "Supportive price action should be evident towards $1,380-$1,375, the extension through to $1,360 is likely to provide entry levels for fresh bullish positioning," MKS PAMP said in a note. "We are again seeing inflows into ETF's following the decline below $1,400." Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.78 percent to 800.20 tonnes on Monday.