BENGALURU - Gold prices inched up on Wednesday after a sharp fall in the previous session, but a firmer dollar on the back of expectations of higher U.S. interest rates and lingering Sino-U.S. trade tensions capped the precious metal's gain.
Spot gold was up 0.3 percent at $1,204.43 an ounce at 0730 GMT. Prices hit their highest since Aug. 10 at $1,214.28 on Tuesday, but closed 0.8 percent lower as U.S. Treasuries rose after the United States and Mexico struck a trade deal. U.S. gold futures were down 0.3 percent at $1,210.60.
"Prices have rebounded but the selling (on Tuesday) shows nobody wants to chase the metal above $1,210 ... There is going to be interest rate hikes in September and December, and that is acting as a burden for gold," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Gold has fallen about 7.5 percent this year amid international trade disputes and the Turkish currency crisis, with investors increasingly turning to the greenback.
The dollar recovered from a four-week low hit overnight as optimism over the U.S.-Mexico trade deal gave way to caution ahead of an upcoming deadline in the Sino-U.S. trade dispute.
The greenback also retraced its losses after the U.S. consumer confidence index came in higher than expected on Tuesday, reaching its highest level since October 2000.
Positive data usually makes investors raise bets on a U.S. interest rate hike.
"Dollar may see further upside in midterm on expectation of return of safe-haven buying, as there is a belief that the strong U.S. economy would be less troubled from a trade war than that of its rivals," said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.
The deadline for public comment on U.S. President Donald Trump's increased tariffs on $200 billion of Chinese goods is on Sept. 5.
Spot gold is expected to retest a support at $1,200 per ounce, a break below which could cause a fall to $1,193, Reuters technical analyst Wang Tao said.
Gold has recovered after touching a 1-1/2-year low on Aug. 16. But that has not reversed investors' bearish stance on the precious metal, with no let-up in liquidations in exchange-traded funds, and as record short positions continue to build in Comex gold.
Holdings in the largest gold-backed ETF, SPDR Gold Trust GLD, have declined 3.6 million ounces from a peak in late April.
"Liquidations are happening as investors are parking more money in riskier assets, which are giving terrific returns and that may cap upside in gold," Bharti said.
Spot silver was up 0.5 percent at $14.73. Platinum rose 1 percent to $793.20, while palladium was 0.2 percent higher at $943.18 after hitting a seven-week top at $956 on Tuesday.