Gold retreats on strong dollar, despite China tariffs

By Eric Onstad

LONDON (Reuters) - Gold prices drifted down on Friday on profit-taking after the dollar hit a seven-month peak and the metal failed to find support despite fresh trade skirmishes between the United States and China.

Gold briefly touched a one-month peak on Thursday after the European Central Bank said it would hold off on interest rate hikes. But an accompanying surge in the dollar knocked it back.

"The dollar has been waking up to some renewed strength and that's largely been held onto today," said Jonathan Butler, commodities analyst at Mitsubishi in London.

"Gold is stuck in a range on either side of $1,300 with no major catalyst to break out on either side."

Spot gold was down 0.7 percent at $1,292.51 per ounce at 1300 GMT, after reaching its highest since May 15 at $1,309.30 an ounce on Thursday.

U.S. gold futures for August delivery fell 1 percent at $1,295.40 per ounce.

The dollar index, was slightly firmer after hitting the highest since November last year.

"We saw a little bit of selling early this morning, a little bit of profit-taking," said MKS SA senior precious metals dealer Alex Thorndike.

Gold deepened losses after President Donald Trump on Friday announced that the United States will implement a 25 percent tariff on $50 billion of goods from China and Beijing quickly said it would hit back with its own tariffs.

Analysts had expected gold to be bolstered by the prospects of a trade war.

The International Monetary Fund said on Thursday that Trump's new tariffs threatened to undermine the global trading system, would prompt retaliation by other countries and damaged the U.S. economy.

Global and U.S. equities have failed to revisit their record highs despite some strong first-quarter profit reports, stoking fears of a correction, Butler said. "Maybe there's some risk hedging out there in gold, there's some cautiousness out there by investors."

In other precious metals, silver fell 0.4 percent to $17.06 an ounce, a day after it hit its highest since April 19 at $17.32 an ounce. The metal has risen about 2 percent this week.

The gold/silver ratio has moved sharply lower over the past two weeks from 79.4 to 75.3, the lowest since last November as silver has outperformed gold.

"With the outright (silver) price now above $17, a level we've seen infrequently this year, there might be some potential for profit taking, particularly from speculative investors," Butler said.

Platinum fell 0.4 percent to $896.24 an ounce and palladium shed 1.5 percent at $992.50 and was on course for its first weekly decline in four.

(Additional reporting by Karen Rodrigues and Swati Verma in Bengaluru; Editing by Adrian Croft and Edmund Blair)