Gold falls as new trade tariffs, rate-hike view buoy dollar

Gold prices fell on Thursday from one-week highs hit in the previous session, as intensifying US-China trade war with another round of tariffs and expectations of higher interest rates lifted the dollar.

Spot gold was down 0.6 per cent at $1,188.16 an ounce at 0823 GMT. Prices hit their highest since August 13 at $1,201.51 on Wednesday, but failed to hold the psychological $1,200 level after recovering from 1-1/2-year lows touched last week. US gold futures were down 0.7 per cent at $1,194.80.

25% tariffs on goods

The United States and China escalated their months-long trade war, implementing punitive 25 per cent tariffs on $16 billion worth of each other's goods.

“People are worried about the fresh round of US tariffs on China and are buying the dollar, which is seen as a safe haven now,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Gold, which has fallen nearly 13 per cent since hitting a high of $1,365.23 in April, has lost its sheen as a safe haven amid trade disputes and the Turkish currency crisis, as investors increasingly flocked to the U.S. dollar instead.

“The fear of rate hikes is also pressuring gold. Despite (US President) Donald Trump's recent attack on rising interest rates, we think the Fed may have its way,” Fung said.

Minutes of Fed meet

Minutes of the US Federal Reserve's latest policy meeting suggested the central bank is on course to further raise interest rates after two hikes this year. Rising interest rates increase the opportunity cost of holding non-yielding gold while boosting the dollar, in which it is priced.

The dollar was up 0.2 per cent against a basket of six major currencies, at 95.411.

Jackson Hole symposium

Markets are now keeping a close eye on the Fed's economic symposium in Jackson Hole, Wyoming, starting Friday for any change in its stance, especially after Trump's attack on its monetary policy early this week.

Uncertainty stemming from legal woes facing members of Trump's inner circle and his continued attack on the Fed could be enough to force investors to close out their record short position in gold, ANZ analysts said in a note.

Net shorts in COMEX gold contracts were at a record high. Spot silver was down 1.2 per cent at $14.55 an ounce. Platinum fell 3 per cent to $776.02 an ounce, while palladium fell 1.5 per cent to $912.30, after hitting a three-week high at $928.50 on Wednesday.