Gold held firm on Wednesday as sagging hopes for progress in U.S.-China trade talks sapped risk appetite, with markets watching closely for clues on monetary easing by the U.S. Federal Reserve.
Spot gold was little changed at $1,505.46 per ounce as of 0359 GMT, but stood its ground above $1,500 after jumping as much as 1 percent in the previous session.
U.S. gold futures gained 0.5 percent to $1,511.00 per ounce.
“The market is holding back, and looking at what’s going to happen in the U.S.-China trade talks on Thursday … If the trade dispute turns worse, we are going to expect some strong risk-off trade,” said Phillip Futures analyst Benjamin Lu.
“The players who were short, rolled back on their positions. We are also seeing some weakness on the equity side.”
The United States on Tuesday imposed visa restrictions on Chinese officials for the detention or abuse of Muslim minorities, angering Beijing, ahead of their high-level trade talks on Thursday and Friday, threatening to derail already delicate trade negotiations.
Asian stocks dropped the most in a week with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.5 percent.
U.S. President Donald Trump has said tariffs on Chinese imports will rise on October 15 if no progress is made in the negotiations.
Alongside, the U.S. Treasury yield curve steepened in Asia after Federal Reserve Chair Jerome Powell signaled further interest rate cuts and the resumption of bond purchases to address a recent spike in money market rates.
“With the latest QE-lite measures, we expect inflow of funds into gold-backed ETFs to continue, which is likely to push gold prices higher. We maintain that gold prices may test as high as $1,600/oz in this period of uncertainty,” OCBC Bank said in a research note.
Lower interest rates generally lessen the opportunity cost of holding non-yielding gold and weigh on the dollar.
Fueling gold’s appeal was also a report that British Prime Minister Boris Johnson is facing a fresh rebellion in his cabinet, with a group of ministers poised to resign due to concerns that he is leading the country towards a no-deal Brexit.
Signals are mixed for spot gold, as it failed to break a support at $1,488 per ounce, said Reuters market analyst, Wang Tao.
Meanwhile, silver inched 0.2 percent higher to $17.75 an ounce, while platinum rose 0.3 percent to $892.29. Palladium declined 0.3 percent to $1,670.82 an ounce.