Gold inches up on weaker US dollar, trade war concerns

[BENGALURU] Gold prices edged up on Wednesday, drifting near a four-month high hit last week, as the US dollar sank to a fresh three-year low, while worries about potential trade wars led to some risk-aversion trade as well.

Spot gold was up 0.1 per cent at US$1,342.30 per ounce at 0715 GMT, while US gold futures for February delivery rose 0.4 per cent to US$1,342.30 per ounce.

"Gold could move higher as we are still in the early stages of a broader USD sell-off, with all eyes focused on 110 USD-JPY," said Stephen Innes, APAC head of trading at OANDA.

The US dollar touched a four-month low against the yen on simmering concerns that the US currency's yield advantage will start to erode as major central banks head toward unwinding their massive stimulus.

Against the yen, the US dollar fell below the 110 threshold for the first time in four months.

The dollar index fell to its lowest since Dec 31, 2014, on a fresh burst of speculative selling.

A weaker US dollar makes bullion more attractive for holders of other currencies.

"Global investors are also concerned about potential trade wars... which is stirring up some risk-aversion trade, so that, in turn, is supporting gold," said Richard Xu, a fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

On Tuesday, US President Donald Trump imposed import tariffs on washing machines and solar panels, putting a cloud over global trade at a time when its revival has fuelled hopes for a stronger world economy.

"I think gold prices will continue to trend higher along with other commodities, so US$1,400 (an ounce) is our near-term target," Mr Xu said.

Markets also expect an US interest rate hike in March.

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion while boosting the greenback.

Meanwhile, recent strong gains in equities weighed on the precious metal. Most Asian stock indexes are up anywhere from 5 to 10 per cent since the start of the year with many at all-time highs.

Spot gold is biased to break a resistance at US$1,341 per ounce and rise towards the Sept 8, 2017 high of US$1,357.54, according to Reuters technical analyst Wang Tao.

In other precious metals, silver was nearly flat at US$17.05 per ounce after touching a 3-1/2-week low of US$16.73 in the previous session.

Platinum fell 0.2 per cent to US$1,004.25 per ounce, while palladium 0.1 per cent to US$1,093.15 per ounce.

REUTERS