Gold steady as the dollar heads higher on trade-war tension

London — Gold prices held steady on Thursday after an upbeat assessment of the US economy by the Federal Reserve and new trade tensions between Washington and Beijing boosted the dollar and US bond yields.

Gold has slumped 11% since April to its lowest in a year as rising US interest rates and the perception that trade wars will damage the US less than other nations pushed the dollar higher. The stronger dollar hurts gold because it makes bullion more expensive for buyers with other currencies. Higher bond yields meanwhile make non-yielding gold less attractive to investors.

“It looks like gold doesn’t want to go lower at the moment,” said ABN AMRO analyst Georgette Boele. “We are in territory — $1,200 to $1,220 an ounce — where we should start to bottom out.”

Spot gold was flat at $1,215.81 an ounce at 10.49am GMT, near a one-year low of $1,211 from July 19, with the dollar 0.3% higher against a basket of currencies. US gold futures were down 0.3% at $1,224 an ounce.

Gold was helped by strong technical support including its low point last month, the 50% retracement of its rally in the first half of 2016 and the psychologically key level of $1,200. But momentum indicators suggest prices will continue to fall, according to analysts at ScotiaMocatta, and gold has not yet snapped a steep downtrend line from mid-June.

Adding to the pressure on bullion are expectations that the Fed will raise interest rates again in September. Those expectations were bolstered on Wednesday when the Fed praised the strength of the US economy, and a jobs survey suggested that non-farm payroll data due on Friday could beat forecasts.

Higher interest rates are bad for gold because they push up bond yields and tend to boost the dollar. Gold could fall to $1,200 ahead of a September rate announcement, Natixis analyst Bernard Dahdah said. But after that, tightening monetary policy elsewhere could begin to push the dollar lower and help gold recover to higher than $1,300 next year, he said.

The Bank of England (BOE) raised interest rates on Thursday, while the European Central Bank (ECB) also intends to wind down its stimulus measures.

In other precious metals, silver was flat at $15.35 an ounce. Platinum fell 0.4% to $808.93 an ounce and palladium was 0.7% lower at $907.34 an ounce.

Reuters