Gold prices firmed on Wednesday as signs of an escalating trade war made investors risk averse, but a buoyant dollar capped the metal's upside. Spot gold was up 0.2% at $1,281.59 per ounce, as of 0607 GMT. In the previous session, the metal slipped from a 1-week peak of $1,287.32 hit on Monday but bounced off a support at around $1,275.
US gold futures were up 0.3% at $1,280.80 an ounce. Safe-haven assets were seen in demand as investors fretted over the global growth outlook after a report by the People's Daily newspaper that Beijing was ready to use rare earths for leverage in its trade war with the United States.
US President Donald Trump said in a news conference with Japanese Prime Minister Shinzo Abe on Monday that he was "not ready to make a deal with China," which came as a fresh blow to hopes of a resolution in the trade war between the world's two largest economies.
"While we are seeing some safe-haven buying of gold, it has certainly been muted. The dollar is gaining preference as a safe-haven asset here," ANZ analyst Daniel Hynes said. "Wider global interest rate differentials between the US dollar and G-6 currencies have further bolstered the US dollar strength whilst extending marked pressure on gold in lieu of its status as a non-interest bearing asset," a Phillip Futures note said.
"The yellow metal looks poised to deliver for range-bound conditions as traders pivot between a strong dollar and existing market risks." Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, which is a gauge of investor interest in the metal, fell 0.2% to 737.34 tonnes on Tuesday from Friday. Among other precious metals, spot palladium was up 0.7% at $1,345.15 an ounce.
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