Gold prices gain as U.S.-China trade spat stokes safe-haven buying

By Apeksha Nair

BENGALURU (Reuters) - Gold prices rose on Tuesday, supported by safe-haven buying as an escalating trade spat between the United States and China sparked a sell-off in equity markets.

Spot gold was up 0.2 percent at $1,280.29 an ounce by 0640 GMT.

U.S. gold futures for August delivery were 0.2 percent higher at $1,282.60 per ounce.

Asian stocks and the U.S. dollar extended a global downturn after President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods in an escalating tit-for-tat trade war between the world's two biggest economies.

The dollar hit a one-week low versus the yen and Asian shares outside Japan slid 2 percent to their lowest level in over six months.

"There is a bit of panic as investors are looking for cover, especially from equity market, and as we know gold does offer that hedge," said Stephen Innes, APAC trading head at OANDA.

Gold prices can gain during times of financial and political uncertainty as the metal is seen as a safe place to park assets, alongside the yen.

Spot gold may bounce moderately to a resistance at $1,290 and then retest support at $1,277 per ounce, said Reuters technicals analyst Wang Tao.

However, limiting scope for upside in the precious metal was the hawkish monetary policy stance by the U.S. Federal Reserve when it raised its benchmark lending rate last week for the second time this year, said John Sharma, an economist at National Australia Bank.

"Fed Chair Jerome Powell's comment that the U.S. economy was 'in great shape' is more in line with four rate rises this year. This is somewhat more aggressive than previously anticipated," Sharma said.

The U.S. economy "appears to be in a pretty good place" that should let the Fed continue its steady program of raising interest rates, another Fed official said on Monday.

Higher U.S. rates tend to boost the dollar and weigh on gold, in which it is priced.

Meanwhile, in other precious metals, silver was unchanged at $16.40 an ounce, after earlier hitting the lowest since June 5 at $16.34.

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

Palladium was down 0.6 percent at $983.60 an ounce, after marking its lowest since June 5 at $979.99 overnight.

(Reporting by Karen Rodrigues and Apeksha Nair in Bengaluru; Editing by Subhranshu Sahu)