Gold trades near three-month peak as bets on U.S. rate cut grow

 Gold trades near three-month peak as bets on U.S. rate cut grow

By Diptendu Lahiri

(Reuters) - Gold prices eased after hitting a three-month peak on Tuesday on news China was open to negotiating a resolution of its trade dispute with the United States, while rising expectations that the U.S. Federal Reserve will cut interest rates provided underlying support.

China's commerce ministry on Tuesday urged dialogue and negotiation to resolve the trade differences, which have roiled financial markets.

Spot gold eased 0.2% to $1,322.67 per ounce as of 12:03 a.m. EDT (1603 GMT), after touching its highest since Feb. 27 at $1,328.98 earlier in the session. U.S. gold futures were steady at $1,327.50 per ounce.

"Headlines have come up saying U.S.-China trade dispute can be negotiated over talks which is pushing gold down," said Afshin Nabavi, senior vice president at MKS SA.

"The metal will seek support at around $1,316 and we will mostly see it going up again from there."

Gold has climbed over 4% since hitting a one-week low of $1,274.44 an ounce last week mainly on the back of escalating trade tensions and expectations that Fed would cut rates to offset the impact of the U.S.-China trade war.

The U.S. central bank will respond "as appropriate" to the risks posed by a global trade war and other recent developments, Fed Chairman Jerome Powell said on Tuesday in remarks that seemed to open the door to the possibility of a rate cut.

Lower interest rates cut the opportunity cost of holding non-yielding commodities, while gold also tends to benefit from growth concerns as an alternative to cyclical assets like stocks.

"A surge in safe-haven demand has been observed over the past few days because no one expected the United States to open a new trade war front with Mexico after China," said Jigar Trivedi, a commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers.

"Safe-haven buying was also seen because manufacturing data from China and the euro zone were seen as a cause of concern."

Reflecting increased investor interest in bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 2.2% on Monday, its biggest one-day percentage gain since July 2016. [GOL/ETF]

Among other precious metals, silver inched down 0.2% to $14.75 per ounce, after touching a more than three-week high of $14.84 in the session.

Platinum fell 0.2% to $819.13 per ounce after hitting a two-week high of $825.78. The metal had marked its biggest intraday percentage gain in 2-1/2 years on Monday.

Palladium jumped 1.62% to $1,344.90 per ounce.

(Reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Richard Chang)

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Updated Date: Jun 05, 2019 00:07:11 IST