Gold prices ease as U.S. rate hike views, trade tensions boost dollar

By Sethuraman N R

BENGALURU (Reuters) - Gold prices inched lower on Tuesday as the dollar was boosted by expectations U.S. interest rate will rise this month and by worries the Sino-U.S. trade war could escalate.

Spot gold was down 0.2 percent at $1,193.07 an ounce at 0258 GMT. U.S. gold futures were mostly steady at $1,199.60 an ounce.

"With the greenback supported by expectations of higher U.S. interest rates, this may translate to nothing but further pain for gold," said Lukman Otunuga, Research Analyst at FXTM, adding that spot prices could drop to $1,185-$1,160 levels in the short- or medium-term.

Strong U.S. payrolls data last week cemented expectations that the U.S. Federal Reserve will raise interest rates in September, in what would be its third hike this year, with expectations of one rise more in December.

Higher rates increase bond yields, making non-yielding bullion less attractive, and tend to boost the dollar.

The dollar index, which measures the greenback against a basket of currencies, was up 0.1 percent at 95.236.

The dollar was also boosted after President Donald Trump last week said he was ready to impose tariffs on virtually all Chinese imports to the United States.

The rhetoric has made investors buy the dollar in the belief that the United States has less to lose from a trade war - making dollar-priced gold more expensive for non-U.S. buyers. [FRX/]

Gold prices have fallen 12.6 percent from a peak in April as the metal has lost its safe-haven appeal compared to the U.S. dollar, driving investors to raise their bearish bets on Comex gold and liquidate gold exchange traded funds.

"If a full-blown trade war (between the U.S. and China) becomes reality and global growth ends up taking a hit, risk aversion may skyrocket ultimately sending investors back to gold," Otunuga said.

Gold prices have been trading within a $20 range for the past 10 sessions.

The yellow metal is finding strong resistance at $1,200, with investors selling into any rallies that threaten to push it above that level, ANZ analysts said in a research note.

In other precious metals, spot silver was down 0.3 percent at $14.12 an ounce, platinum rose 0.4 percent to $785 an ounce. Palladium was down 0.1 percent at $975 an ounce, after hitting its highest in nearly 12 weeks at $991.15.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Amrutha Gayathri and Joseph Radford)