Gold climbs as dollar weakens on U.S.-China trade dispute

By Renita D. Young and Eric Onstad

NEW YORK/LONDON, Sept 19 (Reuters) - Gold rose on Wednesday as the dollar weakened, indicating investors are starting to worry about the impact of the U.S.-China trade war on the U.S. economy, luring some buyers back into precious metals investments.

The U.S. dollar edged lower against the euro and fell to the lowest level in nearly three weeks against the risk-sensitive Aussie, as investors held off on embracing the greenback amid the latest round of tariffs by China and the United States.

Spot gold climbed 0.5 percent to $1,203.68 per ounce by 1:33 p.m. EDT (1733 GMT). U.S. futures for December delivery settled up $5.40, or 0.5 percent, at $1,208.30 per ounce.

"It appears that investors are beginning to view tariffs - while likely negative for China's exports - could also prove detrimental to the United States as well, given the disruptive impact on global supply chains," National Australia Bank economist John Sharma said.

China said on Wednesday it will not stoop to competitive devaluation of its currency, hours after it hit back with a softer punch than the one landed by the United States in an escalating tariff dispute.

Gold prices have declined about 12 percent since April, hurt by the intensifying dispute and on rising U.S. interest rates with investors buying the dollar in the belief the United States has less to lose from the dispute.

Yet on Wednesday, the U.S. dollar index fell against a basket of major currencies.

"The dollar is weaker against not just the majors. There's been some expectation about some resurgence in emerging market currencies," said David Meger, director of metals trading at High Ridge Futures. "That's supporting gold."

The weaker dollar and calming fears of an emerging market currency fallout also supported palladium, despite eased automotive demand, traders said, as the metal climbed to its highest level in five months.

Autocatalyst metal palladium added 2.4 percent to $1,033.25 per ounce, after marking its highest price since April 19 at $1,041.70.

"Used chiefly in the auto industry, palladium profited also from the relief rally enjoyed by base metals. Because platinum hardly kept pace at all, the price gap between palladium and platinum widened," Commerzbank said in a note.

Platinum gained 1 percent to $817.74 per ounce, after hitting its highest level since Aug. 13 at $823 during the session.

The spread between the two metals has increased to more than $210 from $176 a week ago.

Spot silver rose 0.8 percent to $14.24 an ounce.

(Reporting by Renita D. Young in New York and Eric Onstad in London; Additional reporting by Vijaykumar Vedala and Nallur Sethuraman in Bengaluru; Editing by Louise Ireland and Matthew Lewis)