LONDON - A softer dollar lifted gold on Monday after two sessions of declines, but investors prepared for more weakness as simmering U.S.-China trade tensions suggested the currency would stay supported and the world's largest economy remained robust.
Spot gold was up 0.4 percent at $1,197.43 an ounce by 1000 GMT after falling 0.6 percent on Friday, when it marked its third straight weekly decline.
U.S. gold futures added 0.1 percent to $1,202.
The dollar index was slightly weaker on Monday after seeing its biggest daily rise since Aug. 23 on Friday.
"The main issue is that this concern over trade tensions between the U.S. and China is translating into a stronger dollar, and that is weighing on gold," said Jonathan Butler, commodities analyst at Mitsubishi in London.
China's Foreign Ministry said on Monday that the government would respond if the United States implements new tariffs, ahead of U.S. President Donald Trump's expected announcement of new duties on $200 billion in Chinese goods.
"I think we'll continue to see gold under pressure. As long as the dollar remains relatively well supported, yields continue to rise and the U.S. economic growth story remains in place, it's hard to see where a strong rally would come from in gold," Butler said.
Gold prices have declined more than 12 percent from April, hurt by intensifying global trade tensions and rising U.S. interest rates.
Spot gold may retest support at $1,193 per ounce after bouncing moderately into a range of $1,197-$1,200, according to Reuters technical analyst Wang Tao.
Gold has held a $25 range for the past few weeks and could remain there until the markets receive specific guidance on rate hikes from the upcoming September Fed meeting, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"It is a range-buying trade as people watch for moves in the dollar and developments in U.S.-China tariffs dispute."
Though gold is generally presumed to be a safe-haven asset, the months-long trade rift between Washington and Beijing has prompted investors to opt for the U.S. dollar in the belief that the United States has less to lose from the dispute.
Investors trimmed their net short position in Comex gold and silver in the week to Sept. 11, U.S. data showed.
Among other precious metals, spot silver climbed 0.9 percent to $14.16.
Platinum rose 0.7 percent to $797.30, while palladium dipped 0.1 percent to $976.90