Gold loses lustre on dollar gains, technical selling

By Zandi Shabalala

LONDON (Reuters) - Gold fell to its lowest in nearly six months on Wednesday as a higher dollar and a technical sell-off overwhelmed safe-haven buying spurred by fears of a trade war between the world's top two economies.

The dollar index, which measures it against a basket of six major currencies, touched its highest since July 2017, as U.S. President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods and Beijing said it would retaliate.

The move reinforced concerns about global growth and triggered a selloff in equities while boosting safe-haven currencies such as the yen and the dollar.

Typically, gold is used by investors as a place to park assets during times of global uncertainty.

But the dollar's inverse relationship with bullion - a stronger greenback makes dollar-denominated assets more expensive for holders of other currencies - can often override other factors.

This link is frequently used by funds which buy and sell on signals generated by numerical models.

Spot gold fell 0.3 percent at $1,274.31 an ounce by 1335 GMT, having touched its lowest since Dec. 22 at $1,270.

U.S. gold futures for August delivery were 0.2 percent lower at $1,277.20 per ounce.

Placing further pressure on gold was the rising prospect of further Federal Reserve interest rate increases after U.S. homebuilding surged to near an 11-year high in May, but a second straight monthly drop in permits suggested housing market activity would remain moderate.

The potential for further rate hikes this year will limit gold's rise, said Capital Economics commodities economist Simona Gambarini.

Other market watchers said gold prices were a victim of technical selling.

"In gold, momentum selling accelerated through the lows as weak technicals (for now) outweighs a supporting macro environment (stocks, yields down, Japanese yen up)," said Saxo Bank analyst Ole Hansen.

In other precious metals, silver was down 0.2 percent at $16.36 an ounce, after hitting its lowest since June 1 at $16.32.

Platinum fell 0.3 percent to $878.50 an ounce, having earlier touched its lowest since mid-December at $873.

Palladium was down 0.8 percent at $981.60 an ounce, after marking its lowest since May 30 at $975.15 overnight.

(Additional reporting by Karen Rodrigues and Apeksha Nair in Bengaluru; Editing by Edmund Blair and John Stonestreet)