Gold lower as dollar steadies in higher US rates environment

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Gold prices dropped, remaining near a six-month low on Wednesday as the U.S. dollar hovered around 11 month peaks but was offset by festering global trade tensions, while platinum hit a 2-1/2-year trough.

Spot gold lost 0.43 percent at $1,268.86 by 3:40 p.m. ET. U.S. gold futures for August delivery settled down $4.10 at $1,274.50.

Rising U.S. interest rates also pressured bullion.

Trade tensions between the United States and China are showing no signs of easing.

On Tuesday, a White House trade adviser said Beijing had underestimated the U.S. president's resolve to impose more tariffs. That followed Washington threatening to impose tariffs on $200 billion of Chinese goods and Beijing saying it was raising tariffs on $50 billion of U.S. goods.

Gold, seen as a safe haven asset, usually gains from geopolitical or economic tensions, but has struggled this time around because the dollar has risen strongly, making dollar-priced gold costlier for non-U.S. investors.

"This environment we've had with interest higher rates and a higher U.S. dollar has kind of halted the rise of gold at least for the short term," said Will Rhind, CEO of GraniteShares.

Higher U.S. interest rates make gold a less attractive investment since it does not bear interest.

However, "the reason it hasn't fallen as much as you'd expect is that safe-haven demand has sustained the price," said Capital Economics analyst Simona Gambarini.

The U.S. dollar was little changed, hovering near an 11-month peak against a basket of major currencies as China's signal of a tolerance of a stronger yuan offset anxiety about the global trade conflict.

World markets recovered from a recent selloff on the trade tensions, while Treasury yields rose after the Federal Reserve chairman said the U.S. Central Bank should continue with a gradual pace of interest rate increases.

Fed Chairman Jerome Powell said the pace should stay the same given that the labor market does not seem to be overly tight.

Platinum increased 0.17 percent at $869. Earlier in the session, it touched $854.50, its lowest since Feb. 3, 2016. Silver was flat at $16.26. Palladium lost 0.63 percent at $960.95, having hit a one-month low of $960.25.