Gold bars are displayed at Degussa shop in Singapore. Picture: REUTERS
Gold bars are displayed at Degussa shop in Singapore. Picture: REUTERS

Bengaluru — Gold rose on Friday as the dollar faltered after softer than expected US inflation data dimmed the case for a faster pace of policy tightening by the US Federal Reserve, amid signs of movement in the China-US trade standoff.

Spot gold was up 0.4% at $1,205.18/oz as of 4.08am GMT, after having hit its highest since August 28 at $1,212.65 on Thursday. It has gained 0.8% so far this week, heading for its first weekly gain in three.

US gold futures were mostly steady at $1,208.50/oz.

"The trade negotiation is a favour to the [gold] market with the dollar a little bit soft and some shorts being covered. There is also some physical buying in Shanghai, with premiums rising," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

The months-long trade rift between Washington and Beijing has prompted investors to buy the dollar in the belief that the US has less to lose from the dispute.

Demand for the dollar eased this week on news that the White House had invited Chinese officials to restart trade talks.

Beijing welcomed the invitation with the two countries now reported to be discussing the details.

The dollar’s index against a basket of six major currencies was a shade lower at 94.491 after slipping 0.3% on Thursday, when it touched 94.428, its lowest since August 31.

Meanwhile, US consumer prices rose less than expected in August and underlying inflation pressures also appeared to be slowing, suggesting the Federal Reserve’s pace of rate hikes could slow.

"With the data falling short of expectations, investors are thinking that the Fed might not go for a rate hike in December, even though a hike in September is definite," said Ji Ming, chief analyst at Shandong Gold Group.

Higher rates make gold less attractive since it does not pay interest and costs to store and insure.

Gold prices have declined about 12% from a peak in April amid intensifying global trade tensions and under pressure from rising US interest rates. This has driven investors towards record short positions in Comex gold and heavy liquidations in gold exchange-traded funds (ETFs).

"If prices stay around $1,200 levels, it means the markets are still positive. People who shorted below could come and cover, driving prices to $1,250," said Hidetaka Namiki, CEO at Singapore-based Asset Management firm Bullionist Capital.

"By looking at the weakness in emerging market currencies and equities being overbought, people are just waiting for the turnaround [in gold]."

Meanwhile, spot silver was up 0.1% at $14.18/oz.

Platinum increased 0.4% to $803, after touching a one-month high of $812.30 on Thursday. Palladium fell 0.1% to $981.25/oz.