Gold retreats on strong dollar, supported by trade tension

By Eric Onstad

LONDON (Reuters) - Gold prices drifted down on Friday on profit-taking after the dollar hit a seven-month peak, but got support from investors skittish about prospects of a trade war and a correction in equity markets.

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 back bullion.

"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 0.3 percent at $1,298.27 per ounce at 1025 GMT, after reaching its highest since May 15 at $1,309.30 an ounce on Thursday.

U.S. gold futures for August delivery fell 0.6 percent at $1,301 per ounce.

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

"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.

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."

Investors are also keeping a close tab on trade tensions between the world's top two economies and if the United States imposes tariffs on Chinese goods, gold could test the overnight highs of $1,309-$1,310 an ounce, said Thorndike.

China vowed on Friday to strike back quickly if the United States hurts its interests, hours before U.S. President Donald Trump was due to unveil revisions to a tariff list targeting $50 billion worth of Chinese goods.

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

In other precious metals, silver rose 0.3 percent to $17.18 an ounce, a day after it hit its highest since April 19 at $17.32 an ounce. The metal has risen about 2.2 percent this week.

Platinum added 0.3 percent to $902.70 an ounce.

Palladium shed 0.6 percent at $1,002 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)