Gold rises on weaker dollar, heads for first weekly gain in four

By Sethuraman N R

BENGALURU (Reuters) - Gold prices edged up on Friday to a one-week high as the dollar weakened on receding fears of a full-blown Sino-U.S. trade war, keeping the yellow metal on track for its first weekly gain in four.

Spot gold was up 0.3 percent at $1,210.68 by 0712 GMT, after touching its highest since Sept. 13 at $1,211.02. It has risen 1.3 percent so far this week.

U.S. gold futures were up 0.3 percent at $1,215 per ounce.

"Higher gold prices are due to the fact that China-U.S. trade tensions have somewhat dissipated," OCBC analyst Barnabas Gan said.

"Right now we have to tread very carefully on gold as any uptick in trade tension is bearish. U.S. tariffs should actually improve trade balance in the U.S and should give more strength to the dollar and push gold prices down."

New U.S. and Chinese tariffs on each other's goods were set at lower rates this week than previously expected, raising hopes that hostilities between the world's two largest economies may be easing.

Investors have been buying the dollar believing that the United States has less to lose from the dispute. But the dollar has weakened this week, with investor flows being diverted away from the greenback to its peers such as emerging market currencies as trade war concerns have ebbed.

The dollar index was hovering near a 10-week low against a basket of major currencies.

Gold has declined over 11 percent from a peak in April, hurt by the intensifying U.S.-China trade dispute and on rising U.S. interest rates.

Investors are awaiting next week's Federal Reserve meeting, where the U.S. central bank is widely expected to raise benchmark interest rates.

Markets are pretty much already positioned in anticipation of U.S. rate hikes, analysts said.

"Due to other external uncertainties including and not limited to trade tensions and a U.S. mid-term election within two months, it is possible that investors will be prepared to give the Fed more time (for assessment of 2019 rate hike outlook)," said Jameel Ahmad, global head of currency strategy and market research at FXTM.

Investment bank Goldman Sachs slashed its 3-, 6- and 12-month gold price forecasts but said there were already signs that gold fundamentals were starting to change, with a recent weakening of the dollar and a rebound in Chinese and Indian gold purchases.

"From here, we continue to expect gradually higher gold prices on the back of renewed emerging markets demand."

Among other precious metals, spot silver rose 0.6 percent to $14.35, after rising to two-week highs of $14.41.

Palladium touched its highest since April 19 at $1,054.97 per ounce and was last down 0.3 percent at $1,053.22.

Platinum hit its highest since Aug. 9 at $837.80.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Richard Pullin and Gopakumar Warrier)