Gold prices inched up on Wednesday as the US dollar retreated from a 16-month high touched earlier in the week, amid a surge in euro and sterling on a draft Brexit agreement.

Spot gold rose 0.1 per cent to $1,202.85 per ounce at 0657 GMT. Prices had slipped to their lowest level since October 11 at $1,195.90 in the previous session. US gold futures were up 0.2 per cent at $1,203.9 per ounce.

“There has been some stalling in the US dollar, the rise has eased helping gold to pick up,” said John Sharma, an economist with National Australia Bank (NAB).

A weaker greenback makes dollar-denominated gold cheaper for the holders of other currencies. “We are seeing investors and speculators snapping up gold because gold has the potential to go up to $1,230 to $1,240,” Sharma added.

The dollar index, which measures the greenback against a basket of six major currencies, was down about 0.2 per cent, pulling back from a 16-month high. However, the selloff in the dollar has been due to the improved risk sentiment around a potential Brexit deal and not because of any deterioration in the fundamentals of the US economy, analysts said.

The British cabinet will meet at 1400 GMT on Wednesday to consider the withdrawal agreement after Britain struck a draft divorce deal with the European Union. The yellow metal has fallen about 12 per cent since hitting a peak in April as investors bought the dollar with the US-China trade war unfolding against a background of higher US interest rates.

“Safe haven appeal has dimmed amidst market reports on the resumption of U.S.-China trade negotiations to avert an escalation in import duties between the world's largest economies,” Benjamin Lu, a commodities analyst with Phillip Futures, said in a note.

“Though gold prices have shown for a slight recovery, headwinds will plague the precious metal at the 1,212 mark.”

Spot gold may bounce to $1,211 per ounce, as it has found a support around $1,195, said Reuters technical analyst Wang Tao.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.11 per cent to 761.16 tonnes on Tuesday. Among other precious metals, silver was up 0.1 per cent to $13.99 per ounce. Palladium fell 0.3 per cent to $1,106.50 per ounce, while platinum was 0.3 per cent higher at $837.40 an ounce.

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