Picture: REUTERS
Picture: REUTERS

London — Gold prices steadied on Wednesday, but the expectation of a higher dollar due to rising US interest rates and strong demand for US treasury bonds seen as a refuge from trade tensions are expected to weigh.

Spot gold was up 0.1% to $1,212.15 an ounce at 10.11am GMT compared with $1,204 hit last week, its lowest since March 2017. Prices are down more than 10% since April.

US gold futures were up 0.1% at $1,220.10.

A higher US currency makes dollar-denominated gold more expensive for holders of other currencies, which potentially would subdue demand. This relationship is used by funds to generate buy and sell signals from numerical models.

"The Fed is going raise rates further this year, that will push up the dollar, a negative for gold," said Quantitative Commodity Research analyst Peter Fertig.

"An escalation in the trade dispute will trigger further moves into US treasuries regarded as the ultimate safe haven. Investors who buy treasuries need dollars."

The latest salvo on the trade front came from the US, which said on Tuesday it would begin collecting tariffs on another $16bn in Chinese goods on August 23.

The final tariff list targeting 279 import product lines brings to about $50bn in goods that now face a 25% tariff that US President Donald Trump has imposed on Chinese imports in an escalating trade war.

The US Federal Reserve is expected to increase interest rates twice more in 2018 and three times next year. The next meeting is in September.

Higher US interest rates raise the opportunity cost of holding gold, which earns nothing and costs money to store and insure.

On the technical front, first support comes in at $1,200, followed by $1,195, near the low seen in March 2017. Resistance is at the 21-day moving average currently sitting at $1,225.

Lack of investor interest can be seen in the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which at 25,319,951.65 ounces on Tuesday are at their lowest since August 2017.

Silver rose 0.3% to $15.37 an ounce, platinum was up 0.1% at $827.00 and palladium ceded 0.2% to $904.50.

Reuters