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Gold rises as US-China trade truce weighs on dollar

International Business
Mon, 03 Dec 2018

BENGALURU - Gold prices gained early on Monday on a weaker dollar as a trade ceasefire between the United States and China revived investor demand for riskier assets.

Washington and Beijing agreed to halt additional tariffs in a deal that keeps their trade war from escalating as the two sides try again to bridge their differences with fresh talks aimed at reaching an agreement within 90 days.

Spot gold was up 0.3 per cent at $1,225.67 per ounce at 0407 GMT, while U.S. gold futures were up 0.4 per cent at $1,230.4 per ounce.

"There's a little bit weaker dollar that seems to be the driving factor for gold," said Stephen Innes, APAC trading head at OANDA in Singapore, adding that the risk-on environment was, however, holding back gains.

The dollar index, which measures the greenback against a basket of six major currencies, was down about 0.3 per cent.

The U.S. currency has been the preferred safe haven this year as the U.S.-China trade war unfolded against a backdrop of higher U.S. interest rates, denting the bullion's appeal.

However, the greenback came under pressure last week after Federal Reserve Chairman Jerome Powell said interest rates are just below neutral, raising expectations that the U.S. central bank is closer to the end of its rate hike cycle.

Gold tends to gain when rate hike expectations recede because lower rates reduce the opportunity cost of holding non-yielding bullion. Lower interest rates also tend to weigh on U.S. yields and the dollar, in which gold is priced.

If the Fed is worried about growth and makes it known more clearly, then the market could possibly see a further boost to gold, said John Sharma, an economist with National Australia Bank (NAB).

Powell is scheduled to testify before a congressional Joint Economic Committee later this week.

Analysts see the yellow metal supported in the near-term on political and economic risks such as uncertainties over Brexit and Italy's budget, and the recent unrest in Paris.

Meanwhile, Asian shares rallied with MSCI's broadest index of Asia-Pacific shares outside Japan up 1.8 per cent.

Among other precious metals, palladium rose nearly 1 per cent to $1,187.90 per ounce, after having crossed the $1,200 mark for the first time on Friday.

Spot silver was up 1.1 per cent at $14.32 per ounce, while platinum climbed 1.8 per cent to $811.90 per ounce.

Speculators increased their net short position in gold by 8,464 contracts to 51,828 contracts in the week to Nov. 27, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

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