OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG
OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG

London — Gold prices ticked lower on Monday under pressure from selling by investors as well as a firmer dollar and another escalation in the trade conflict between China and the US.

Spot gold was down 0.2% at $1,211.16/oz by 9.41am GMT after climbing as high as $1217.85 in early trade.

US gold futures dipped 0.3% at $1,219.50/oz.

"Overall the bears remain in control and they continue to increase their short positions — both the net and gross are hitting records," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Hedge funds and money managers added a hefty 13,931 contracts to their net short position in the week to July 31, bringing it to 41,087 contracts, the biggest since records became publicly available in 2006, data showed on Friday.

Gold has been in a downtrend since touching a peak of $1,365.23 on April 11. It has shed more than 11% and hit a 17-month low on Friday.

"We bounced off the $1,205 level on Friday and that is just a red flag to the bears right now. They are taking aim at that level and gold is likely to struggle unless we see a clear change in the view on the dollar," Hansen said.

The dollar rose on Monday, edging towards a one-year high, as escalating trade war rhetoric between the US and its trading partners helped the US currency. Investors have largely been buying the dollar as a safe-haven asset rather than gold as the US-China trade dispute escalates.

Chinese state media on Monday lambasted US President Donald Trump’s trade policies in an unusually personal attack.

"The more expensive dollar is capping the rally in gold prices. Further downside for gold still appears to be possible especially if the dollar continues to rally," OCBC analyst Barnabas Gan said.

Spot gold may retest a support at $1,206/oz, a break below which could cause a loss to the next support at $1,194, Reuters technical analyst Wang Tao said.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.26% to 794.90 tonnes on Friday.

In other precious metals, silver fell 0.1% to $15.36/oz.

Platinum rose 0.5% to $830.80/oz, while palladium added 0.2% to $910.97/oz.