Gold gains on short-covering, softer dollar

By Eric Onstad

LONDON (Reuters) - Gold clawed higher on Thursday, propelled by a weaker dollar, short-covering and physical buying in Asia.

Worries of new U.S. trade tariffs on China, however, cast a cloud over the market.

"The precious metals are witnessing a relief bounce, which coupled with the strong oversold conditions is leading to some short-covering," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.

"The bottom is very close because I think the U.S. dollar is close to reaching the top, together with the peak of the U.S. economy."

Spot gold was up 0.8 percent at $1,206.40 an ounce at 1350 GMT, after rising 0.5 percent in the previous session.

U.S. gold futures climbed 0.9 percent to $1,211.80 an ounce.

Gold has tumbled more than 12 percent from a peak of $1,365.23 in April. Present levels have recently invoked a lot of physical buying in not just active gold-buying countries like India and China, but in Southeast Asia for investment purposes too, traders and analysts said.

India's gold imports more than doubled in August to their highest level in 15 months as lower prices prompted manufacturers to replenish inventory.

China's yuan weakened against the dollar on Thursday as investors braced for more sweeping tariffs expected soon from Washington, making gold expensive for buyers in the world's biggest consumer, traders said.

Gold has been under pressure for most of this year on rising interest rates, global trade tensions and an emerging-market currency crisis, with investors parking their money in the dollar, undermining the metal's safe-haven status.

The dollar fell 0.2 percent against a basket of six major currencies after shedding nearly 0.3 percent overnight. [USD/]

Markets will be closely watching a U.S. employment report due on Friday for clues about the pace of interest rate increases by the Federal Reserve.

"This week's non-farm payrolls data could strengthen the dollar further and push gold down. But it is likely to take support near $1,140," said Hareesh V, head of commodity research at Geojit Financial Services.

Spot silver gained 0.7 percent to $14.26. The metal hit an over 2-1/2-year low at $13.97 early this week.

Platinum climbed 1.3 percent to $793.50, while palladium rose 0.6 percent to $978.60.

"Like all other precious metals, platinum recovered slightly ... the market situation and the chances of a more pronounced and lasting price recovery are not looking good, however," Commerzbank said in a note.

The bank referred to a report by the World Platinum Investment Council, which forecast the global platinum market will be oversupplied by 295,000 ounces this year as supply and demand for the autocatalyst metal fall by 2 percent.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Elaine Hardcastle and Dale Hudson)