BENGALURU - Gold prices narrowed losses on Friday as U.S. tariffs on Chinese imports weighed on the greenback, stoking fears of a full-blown trade war between the two leading economies.
China has implemented additional tariffs on some import products from the United States immediately after U.S. tariffs on $34 billion in Chinese imports took effect, state media reported.
"If the trade war escalates and then China could sell U.S. treasuries and buy gold. This would be a big event," said Helen Lau, analyst, Argonaut Securities.
Spot gold was 0.1 percent lower at $1,256.54 an ounce by 0702 GMT, having dropped to $1,252.15 earlier in the session.
The bullion was, however, headed for its first weekly gain in four.
U.S. gold futures for August delivery slipped 0.1 percent to $1,257.50 an ounce.
The dollar eased against its peers on Friday ahead of the key U.S. jobs report later in the day and investor caution prevailed in global markets with focus turning to retaliatory measures China could employ.
China has no choice but to fight back against U.S. bullying on trade, the country's Commerce Ministry said on Friday.
"Traders are extremely cautious when it comes to gold. The intraday price-action has a bullish set-up and shows that the price has potential to test the level of $1,280 in the coming days if the dollar weakness continues," ThinkMarkets chief market analyst Naeem Aslam said.
Meanwhile, U.S. central bankers discussed whether recession lurked around the corner and expressed concerns global trade tensions could hit an economy that by most measures looked strong, minutes of the Federal Reserve's last policy meeting on June 12-13 released on Thursday showed.
The minutes described a meeting in which the Fed raised interest rates for the second time this year. It also suggested policymakers might soon signal the central bank's rate-hiking cycle was advanced enough that policy was no longer boosting or constraining the economy.
"I take the view the Fed will take a modestly dovish line, while trade tariff uncertainties persist. Gold is oversold, so I expect it to rally somewhat while interest rate expectations soften, perhaps to one more instead of two quarter point increases this year," said Alasdair Macleod, head of research with Toronto-based Goldmoney Inc.
Among other precious metals, silver climbed 0.5 percent to $16.06 an ounce.
Palladium slipped 0.2 percent to $945.97 an ounce, while platinum gained 0.3 percent to $842.70.
All three metals were headed for their fourth straight weekly decline.