Gold prices inched down on Thursday as bonds rallied and the dollar hovered near a two-year high, negating the support from an increasingly bitter Sino-U.S. trade dispute that rekindled doubts about global economic growth.
Spot gold was down 0.1% at $1,277.71 per ounce, as of 0312 GMT. U.S. gold futures edged 0.3% lower to $1,276.70 an ounce.
"Investors look like they prefer U.S Treasuries as a safe haven for now, evident by the inverted U.S yield curve," Howie Lee, an economist at OCBC Bank, said.
"A strong dollar is also likely impeding big players such as China and India from consuming too much (of gold)."
The dollar held steady against its key rivals on Thursday as escalating Sino-U.S. trade tensions forced investors into the shelter of safe-haven assets, including government bonds.
Against a basket of six major currencies, the dollar was steady at 98.123, hovering within the reach of a two-year high of 98.371 hit a week ago. The index is up more than 2% for the year.
Asian stocks tracked Wall Street losses on Thursday as latest exchanges between Beijing and Washington signalled the heightened risk of a prolonged trade war.
Provoking trade disputes is "naked economic terrorism", a senior Chinese diplomat said on Thursday, ramping up the rhetoric against the United States amid a bitter trade war that is not showing any signs of ending soon.
"Gold is still trading bullishly on the medium-term technicals, although there is a perceived loss of momentum," said Nicholas Frappell, global general manager at ABC Bullion.
"With bond yields so low and weakening equity markets, gold could find support. As far as the price remains above $1,265-$1,270, gold will rally back to $1,306 and $1,316 levels."
Meanwhile, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.5% to 740.86 tonnes on Wednesday.
Despite Wednesday's rise, SPDR gold holdings are down over 6% so far this year.
Gold ETF holdings have remained muted in spite of the escalation in Sino-U.S. tensions, suggesting that investors are looking at alternative sources of portfolio hedge, OCBC's Lee said.
Among other precious metals, silver fell 0.7% to $14.32 per ounce. The metal had dropped to $14.25 on Tuesday, its lowest since early December.
Platinum dipped 0.2% to $790 per ounce, after earlier falling to its lowest since Feb. 15 at $785.50. Palladium dropped 0.9% to $1,336.95 per ounce.