Gold gains as dollar dips on soft U.S. data

By Sethuraman N R

BENGALURU (Reuters) - Gold rose on Friday as the dollar faltered after softer-than-expected U.S. inflation data dimmed the case for a faster pace of policy tightening by the U.S. Federal Reserve, amid signs of movement in the Sino-U.S. trade standoff.

Spot gold was up 0.4 percent at $1,205.18 an ounce as of 0408 GMT, after having hit its highest since Aug. 28 at $1,212.65 on Thursday. It has gained 0.8 percent so far this week, heading for its first weekly gain in three.

U.S. gold futures were mostly steady at $1,208.50 an ounce.

"The trade negotiation is a favour to the (gold) market with the dollar a little bit soft and some shorts being covered. There is also some physical buying in Shanghai, with premiums rising," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

The months-long trade rift between Washington and Beijing has prompted investors to buy the U.S. dollar in the belief that the United States has less to lose from the dispute.

Demand for the dollar eased this week on news that the White House had invited Chinese officials to restart trade talks. Beijing welcomed the invitation with the two countries now reported to be discussing the details.

The dollar's index against a basket of six major currencies was a shade lower at 94.491 after slipping 0.3 percent on Thursday, when it touched 94.428, its lowest since July 31.

Meanwhile, U.S. consumer prices rose less than expected in August and underlying inflation pressures also appeared to be slowing, suggesting the Federal Reserve's pace of rate hikes could slow.

"With the data falling short of expectations, investors are thinking that the Fed might not go for a rate hike in December, even though a hike in September is definite," said Ji Ming, chief analyst at Shandong Gold Group.

Higher rates make gold less attractive since it does not pay interest and costs to store and insure.

Gold prices have declined about 12 percent from a peak in April amid intensifying global trade tensions and under pressure from rising U.S. interest rates. This has driven investors towards record short positions in Comex gold and heavy liquidations in gold exchange-traded funds.

"If prices stay around $1,200 levels, it means the markets are still positive. People who shorted below could come and cover, driving prices to $1,250," said Hidetaka Namiki, chief executive at Singapore-based Asset Management firm Bullionist Capital.

"By looking at the weakness in emerging market currencies and equities being overbought, people are just waiting for the turnaround (in gold)."

Meanwhile, spot silver was up 0.1 percent at $14.18 per ounce. Platinum increased 0.4 percent to $803, after touching a one-month high of $812.30 on Thursday. Palladium fell 0.1 percent to $981.25 per ounce.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Subhranshu Sahu)