Gold rises on hopes of Fed pause; trade talks in focus

By Sethuraman N R

(Reuters) - Gold prices edged higher on Thursday as soft U.S. inflation data raised expectations that the Federal Reserve will pause rate hikes this year, while investors were looking for developments in trade talks between Washington and Beijing.

Spot gold was up 0.2 percent at $1,308.39 per ounce, as of 0256 GMT. U.S. gold futures were down 0.3 percent at $1,311.

U.S. consumer prices were unchanged for a third straight month in January, leading to the smallest annual increase in inflation in more than 1-1/2 years, which could allow the Federal Reserve to hold interest rates steady for a while.

"If you look more broadly, the Fed is unlikely to raise rates in an environment where inflation is still low," said Ilya Spivak, a senior currency strategist at DailyFX.

There is a dense layer of technical support for gold around $1,294-$1,307, he added.

Gold prices touched a more than one-week high of $1,318.12 on Wednesday, but pared gains in the late session on the dollar's strength.

The dollar benefited from sustained strength in core U.S. inflation. In the latest 12-month period, the so-called core CPI rose 2.2 percent for a third straight month.

"The data was supportive for dollar. You can see intraday declines (in gold on the data), but there is not enough juice for a downside breakout in gold," Spivak said.

Gold prices have risen nearly 13 percent since touching more than 1-1/2-year lows in mid-August, mostly on expectations of a pause in interest rate hikes and tumultuous stock markets.

The U.S. central bank held rates steady in late January and promised to be "patient" in rate moves due to impending slowdown and uncertain trade backdrop.

Several Fed officials have indicated that they will support a pause in interest rate hikes to assess its impact on the economy.

Lower interest rates reduce the opportunity cost of holding non-interest bearing gold and weigh on the dollar.

Meanwhile, investors were hoping for a breakthrough in the trade impasse between the United States and China.

U.S. President Donald Trump said on Wednesday the talks with China were "going along very well" as they try to resolve the tariff dispute ahead of a March 1 deadline.

Although gold is experiencing several headwinds from a robust dollar and improved risk appetite, prices remain supported by global growth worries, analysts with Singapore-based Phillip Futures said in a note.

With gold unable to break higher, outflows rose in holdings of SPDR Gold Trust, the world's largest gold-backed ETF. Holdings have fallen over 3 percent so far this month.

Elsewhere, palladium rose 0.4 percent to $1,400 per ounce.

Platinum was up 0.1 percent at $784 per ounce, while silver rose 0.4 percent to $15.63.

(Reporting by Nallur Sethuraman in Bengaluru, Editing by Sherry Jacob-Phillips and Subhranshu Sahu)