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· Gold prices on Wednesday held on to the previous session’s gains, as fading hopes for progress in U.S.-China trade talks hit risk appetite, while markets also awaited clues on monetary easing by the U.S. Federal Reserve.

Spot gold rose 0.4% to $1,510.50 per ounce as of 0723 GMT, and stood its ground above $1,500 after jumping as much as 1% in the previous session. U.S. gold futures gained 0.8% to $1,516.20 per ounce.

· “The market is holding back, and looking at what’s going to happen in the U.S.-China trade talks on Thursday... If the trade dispute turns worse, we are going to expect some strong risk-off trade,” said Phillip Futures analyst Benjamin Lu.

“The players who were short, rolled back on their positions. We are also seeing some weakness on the equity side.”

· The United States on Tuesday imposed visa restrictions on Chinese officials for the detention or abuse of Muslim minorities, angering Beijing ahead of high-level trade talks on Thursday and Friday, and sending Asian stocks lower.

The dollar was a shade lower against a basket of major currencies.

U.S. President Donald Trump has said tariffs on Chinese imports will rise on Oct. 15 if no progress is made in the negotiations.

· The U.S. Treasury yield curve steepened in Asia after Federal Reserve Chair Jerome Powell signalled further interest rate cuts and the resumption of bond purchases to address a recent spike in money market rates.

Lower interest rates generally reduce the opportunity cost of holding non-yielding gold and weigh on the dollar.

· “With the latest QE-lite measures, we expect inflow of funds into gold-backed ETFs to continue, which is likely to push gold prices higher. We maintain that gold prices may test as high as $1,600/oz in this period of uncertainty,” OCBC Bank said in a research note.

· Signals are mixed for spot gold, as it failed to break a support at$1,488 per ounce, said Reuters market analyst, Wang Tao.

“The psychological $1,500 pivot looms as the first key support for gold, however expect to see interest extend as far as $1,485,” MKS PAMP said in a note.

· Investment demand has reached historical levels but the market is not as robust as it looks with physical demand remaining weak. Many precious metals players are now hoping to see a reassurance in demand during critical holiday in key precious metals markets.

Gold analysts are keeping a close eye on Indian gold demand as the10-day Dussehra festival kicks off today, which will then be followed by Diwali, the festival of light. Joni Teves, precious metals strategist at UBS, noted that gold is a traditional gift giving during these festivals.

“In spite of the weakness in India in recent months, we anticipate some seasonal interest to come through over the coming weeks,” she said.

The festivals come as India has seen extremely weak gold demand with government data showing only 13.5 tonnes of gold was imported last month imports, down 85% from last year.

Analysts at Commerzbank noted that last month’s gold imports was the lowest in three years.

“It is first and foremost the high local gold prices that are deterring potential buyers,” the analysts said. “Gold in Indian rupees had achieved a record high in early September. Indian traders are now pinning their hopes on the upcoming Hindu festivals such as Diwali.”

But, it’s not just higher domestic gold prices that are hurting Indian demand. Earlier this year, the Indian government raised tariffs on gold imports to 12.5% up from 10%.

· Economist Ho Woei Chen at UOB Group assessed the recent figures from FX reserves and gold holdings in the Chinese economy.

Key Quotes

“China’s official reserves assets fell US$17.0bn in September comprising US$14.7bn drop in foreign currency reserves and US$2.4bn decline in the gold reserves though its holdings of gold in volume terms has continued to rise to fresh record high of 62.6 mn ounces from 62.5 mn ounces in August. China has been adding to its gold reserves for 10straight months since December 2018 after having kept it flat in 2017and most part of 2018 in an apparent policy shift as trade tensions with the US escalate”.

“Overall, China’s foreign currency reserves were still up US$19.7bn YTD in September. While pressure on the economy has increased due to the escalating trade tensions with the US and RMB depreciation (3.5%depreciation vs USD YTD), capital outflows have yet to become a major concern compared to the period in mid-2014 to late-2016 when foreign currency reserves fell by about a quarter from about US$4 trillion to US$3 trillion. This is also shown in the relatively more balanced FX inflows/outflows trend compared to the period of 2014-2016”.

· Gold Prices Forecast

Gold prices edged as high as $1509.74 for the day but ultimately closed at $1505.62. The yellow metal is now touching falling resistance that forms the upper crust of what appears to be a bearish reversal pattern known as a Descending Triangle. A break above with follow-through would invalidate the pattern while a turn away from resistance would reinforce the strength of resistance.

· Gold technical analysis: Bulls committed to protecting $1500 the figure

Bulls buffed up their bids overnight and stepped in below 1500 the figure as the pair slid on broad US dollar strength. 1487 was the lows until the price got back over the line, albeit still a stretch from the gain line as being the 3rd October highs of 1519.

At this juncture, the 21-day moving average has been crossed but the bulls need a close above 1520 to open prospects for the 1535resistance. Persistent failures below 1520, and for that matter, 1535, will open up prospects for a bearish run again. Bears can target a break to below a 50% mean reversion of the late June swing lows to recent highs around 1460/70. On the wide, the 200-DMA is located at 1380meeting a 61.8% retracement of the April lows to Aug/Sep double top highs - a key target for the bulls, located in the 1550s.

· Meanwhile, silver gained 1.2% to $17.91 an ounce, while platinum rose 0.4% to $892.99. Palladium declined 0.2% to $1,673.17 an ounce.