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· Gold prices firmed on Wednesday as signs of an escalating trade war made investors risk averse, but a buoyant dollar capped the metal’s upside.

Spot gold was up 0.2% at $1,281.59 per ounce, as of 0607 GMT. In the previous session, the metal slipped from a 1-week peak of$1,287.32 hit on Monday but bounced off a support at around $1,275.

U.S. gold futures were up 0.3% at $1,280.80 an ounce.

· Safe-haven assets were seen in demand as investors fretted over the global growth outlook after a report by the People’s Daily newspaper that Beijing was ready to use rare earths for leverage in its trade war with the United States.

· U.S. President Donald Trump said in a news conference with Japanese Prime Minister Shinzo Abe on Monday that he was “not ready to make a deal with China,” which came as a fresh blow to hopes of a resolution in the trade war between the world’s two largest economies.

“While we are seeing some safe-haven buying of gold, it has certainly been muted. The dollar is gaining preference as a safe-haven asset here,” ANZ analyst Daniel Hynes said.

Despite U.S. 10-year Treasury yields being at their lowest since September 2017, the dollar has managed to maintain its composure as investors flocked towards the U.S. currency on fears that the Sino-U.S. trade war may aggravate.

· The Trump administration also said on Tuesday that no major trading partner met its currency manipulation criteria but nine countries, including China, required close attention as Washington presses tariffs and negotiations to address trade deficits.

The dollar is now mimicking its characteristics from last year when its continued strength pressured bullion since the start of retaliatory tariff impositions by the two greatest economies in the world.

· “Wider global interest rate differentials between the U.S. dollar and G-6 currencies have further bolstered the U.S. dollar strength whilst extending marked pressure on gold in lieu of its status as a non-interest bearing asset,” a Phillip Futures note said.

“The yellow metal looks poised to deliver for range-bound conditions as traders pivot between a strong dollar and existing market risks.”

· Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which is a gauge of investor interest in the metal, fell 0.2% to 737.34 tonnes on Tuesday from Friday.

· The price of gold is dropping sharply to around $1,277, around $8 on the day and falling back to levels that were seen last week. The sell-off in the precious metal is not correlated to any other market movement. American and British traders return to their desks after a long weekend.

XAU/USD dropped below the 50 and 100 Simple Moving Averages on the four-hour chart but momentum remains positive. The Relative Strength Index is leaning lower -- but also holds above 30, not reflecting oversold conditions.

Support is seen at $1,277 which provided some support last week, followed by $1,268 which was a swing low and then by $1,266, the lowest in May. Resistance is seen at $1,283 (recent swing high), $1,290 (mid-May swing high) and $1,308, the highest level this month.

· GOLD TECHNICAL ANALYSIS