Gold rose to a one-week high on Wednesday, extending the prior session`s rebound from a seven-month low, helped by a softer U.S. dollar and smoldering trade policy tensions, though the prospect of the Federal Reserve raising interest rates further may limit gains.

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The U.S. dollar index fell against a basket of major currencies, while the Chinese yuan rose for a second day with central bank support, after seeing an 11-month low this week. [FRX/]

A weaker U.S. dollar makes dollar-priced gold cheaper for non-U.S. investors.

"Gold has been trending lower for several weeks and this being (U.S) non-farm payrolls (week) the dollar is likely to remain in range, so people are taking profit on dollar and gold positions," said Fawad Razaqzada, an analyst at FOREX.com.

"I`m still not convinced we`ve seen the lows so long as gold remains below $1,300. The dollar is on an upwards trajectory. I don`t think (looming U.S. interest rate) hikes are fully priced into the dollar or gold."

Spot gold was up 0.3 percent at $1,256.20 an ounce by 1:59 p.m. EDT (17:59 GMT) after touching $1,261.10, a one-week high. The yellow metal has gained over $20 from Tuesday`s low of $1,237.32 an ounce, its weakest since Dec. 12.

U.S. gold futures for August delivery rose 0.4 percent to $1,258.10 in a shortened session and will not have a settlement price due to the U.S. Independence Day holiday on Wednesday.

Investors are now looking to minutes of the June U.S. Federal Reserve meeting due for publication on Thursday and the U.S. non-farm payrolls and unemployment data on Friday for further cues on monetary policy. Markets are pricing in two more Fed interest rate hikes for 2018.

World stocks were flat amid growing anxiety ahead of Washington`s end of week deadline to impose tariffs on Chinese imports.

"Since the trade wars have been doing the rounds, if anything we`ve seen gold come lower. But if it continues to escalate gold could go only one way and that`s higher," a Sydney-based trader said.

China is putting pressure on the European Union to issue a strong joint statement against U.S. President Donald Trump`s trade policies at a summit later this month but is facing resistance, European officials said.

Gold is often regarded as a safe haven during times of political and financial uncertainty.

Silver was 0.1 percent higher at $16.03 an ounce and palladium gained 0.7 percent to $946.

Platinum was flat at $837 an ounce. The metal fell on Tuesday to the lowest since December 2008 at $793.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)