Spot gold was up 0.3 percent at $1,204.64 an ounce at 0329 GMT. Prices hit their highest since Aug. 10 at $1,214.28 on Tuesday but closed 0.8 percent lower as U.S. Treasuries rose after the United States and Mexico struck a trade deal.
“The selling (on Tuesday) shows nobody wants to chase the metal above $1,210 … There is going to be interest rate hikes in September and December, and that is acting as a burden for gold,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Gold has lost its appeal as a safe-haven asset, having fallen 7.5 percent this year, amid international trade disputes and the Turkish currency crisis, with investors increasingly turning to the dollar instead.
The dollar was stuck in a tight range on Wednesday after touching a four-week low overnight as optimism over the U.S.-Mexico trade deal gave way to caution ahead of an upcoming deadline in the Sino-U.S. trade dispute.
The deadline for public comment on U.S. President Donald Trump’s increased tariffs on $200 billion of Chinese goods is on Sept. 5.
As long as trade tensions between the United States and China continue to persist, the U.S. dollar will benefit and, in turn, hurt gold, analysts said.
Spot gold is expected to retest a support at $1,200 per ounce, a break below which could cause a fall to $1,193, Reuters technical analyst Wang Tao said.
“If gold can consolidate around the present levels and hit $1,215 again, then we might see prices move to $1,235-$1,240,” Leung said.
Gold prices have recovered some ground after touching a 1-1/2-year low on Aug. 16 and are holding above the key psychological level $1,200.
However, that has not reversed investors’ bearish stance on the precious metal, with no let-up in liquidations in exchange-traded funds, and record short positions in Comex gold.
Holdings in the largest gold-backed ETF, SPDR Gold Trust GLD, have declined 3.6 million ounces from a peak in late April.
“It looks like people are happy to be short. We need some incentives for the shorts to be covered, which is missing at this point of time,” said Yuichi Ikemizu, Tokyo branch manager, ICBC Standard Bank.
Spot silver was up 0.6 percent at $14.75.
Platinum rose 0.9 percent to $789.99, while palladium was down 0.1 percent at $939.80 after hitting a seven-week top at $956 on Tuesday.
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