By Zandi Shabalala
LONDON (Reuters) - Gold prices were steady on Wednesday as concerns about political turmoil in Italy and over a trade conflict between China and the United States outweighed strength in the dollar.
Italy kept the dollar at 10-month highs versus the euro amid concerns that repeat elections may become a de-facto referendum on Italian membership of the currency bloc.
The turbulence underpinned gold due to its appeal as a store of value during political and financial uncertainty.
The dollar index, which measures the greenback against a basket of six major currencies, hovered near its 6-1/2 month peak from the previous session. A stronger dollar makes assets such as gold more expensive for holders of other currencies, curbing demand.
"There has been a little bit of support from what has been happening in Italy and the potential implications for the Eurozone from the Italian crisis," Capital Economics commodities economist Simona Gambarini said.
"But it doesn't seem like the worries are big enough to warrant an increase in prices," she said, adding that price support was slightly eroded by the potential for an interest rate increase in June by the U.S. Federal Reserve.
U.S. benchmark 10-year Treasury yields on Tuesday registered their largest one-day drop since Brexit nearly two years ago. Higher rates could dent demand for non-interest-paying gold.
Spot gold barely changed at $1,298.98 per ounce by 0932 GMT while U.S. gold futures for June delivery edged slightly lower to $1,298.70 per ounce.
China on Wednesday lashed out at Washington's unexpected statement that it still holds the threat of imposing tariffs on $50 billion of Chinese goods, saying Beijing was ready to fight back in any trade war.
But Capital Economics' Gambarini said the potential trade war between China and the United States was mostly priced into gold, which would need an escalation or resolution to become a catalyst to prices again.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.35 percent to 851.45 tonnes on Tuesday.
In other precious metals, spot silver was stead at $16.40 an ounce.
Platinum fell 0.5 percent to $899.35 an ounce, while palladium was 0.6-percent lower at $973.90.
(Additional reporting by Karen Rodrigues in Bengaluru; Editing by Alexander Smith)
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Updated Date: May 31, 2018 00:05:44 IST