Gold prices steadied on Wednesday, but expectations of a higher dollar due to rising U.S. interest rates and strong demand for U.S. Treasury bonds seen as a refuge from trade tensions are expected to weigh.
A higher U.S. currency makes dollar-denominated gold more expensive for holders of other currencies, which potentially would subdue demand. This relationship is used by funds to generate buy and sell signals from numerical models.
"The Fed is going raise rates further this year, that will push up the dollar, a negative for gold," said Quantitative Commodity Research analyst Peter Fertig.
"An escalation in the trade dispute will trigger further moves into U.S. Treasuries regarded as the ultimate safe haven. Investors who buy Treasuries need dollars."
The latest salvo on the trade front came from the United States, which said on Tuesday it would begin collecting tariffs on another $16 billion in Chinese goods on Aug. 23.
The final tariff list targeting 279 import product lines brings to about $50 billion in goods that now face a 25 percent tariff that U.S. President Donald Trump has imposed on Chinese imports in an escalating trade war.
The U.S. Federal Reserve is expected to increase interest rates twice more this year and three times next year. The next meeting is in September.
Higher U.S. interest rates raise the opportunity cost of holding gold, which earns nothing and costs money to store and insure.
On the technical front, first support comes in at $1,200, followed by $1,195, near the low seen in March 2017. Resistance is at the 21-day moving average currently sitting at $1,225.
Lack of investor interest can be seen in the holdings of SPDR Gold Trust
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)