By Zandi Shabalala
LONDON (Reuters) - Gold prices steadied at their highest in a week on Wednesday, as the dollar eased ahead of minutes from the U.S. Federal Reserve's August policy meeting and trade talks between Chinese and U.S. officials.
The Fed minutes are expected to cement market assumptions for two more interest rate increases this year, which do not bode well for non-interest yielding bullion, although analysts said this was already largely factored into the gold price.
Rising interest rates lift the opportunity cost of holding non-yielding metal while boosting the dollar, in which it is priced.
"The Fed was sounding relatively hawkish when it met last month and the outlook is likely to be for another rate rise later this year and that is largely within the gold price," said Mitsubishi analyst John Butler.
He said that in the meantime, the weaker dollar would help gold test the key psychological level of $1,200, helping lift it from currently oversold levels. Gold touched a more than 1-1/2-year low last week.
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Spot gold was steady at $1,195.25 an ounce at 1014 GMT, having touched $1,197.98, its highest since Aug. 14. U.S. gold futures gained 0.4 percent to $1,204 an ounce.
The dollar index against a basket of six major currencies was marginally weaker, having fallen to a nearly two-week low of 95.08 in the previous session. [USD/]
U.S. President Donald Trump's reiteration on Monday of his displeasure with rising interest rates had weighed on the dollar, ahead of the Fed's minutes and its annual economic symposium at Jackson Hole, Wyoming that will begin on Friday.
Gold has come under pressure this year, sliding more than 12 percent since hitting a high of $1,365.23 in April amid U.S. interest rate hikes and a soaring dollar.
Markets also looked ahead to trade talks between Chinese and U.S. officials expected to begin later on Wednesday in Washington.
Meanwhile, liquidations continued at SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. Holdings have fallen about 3.4 million ounces from a peak in late April.
Net shorts in COMEX gold contracts rose to a record high in the week ending Aug. 14 at 77,273 contracts, according to data from U.S. Commodity Futures Trading Commission.
Gold was consolidating between $1,180 and $1,200 an ounce, said ActivTrades chief analyst Carlo Alberto De Casa.
"We could have a first positive impulse if prices jump above $1,200, while a correction below $1,180 would confirm, once again, the bearish trend of the last few weeks," he said.
Spot silver rose 0.4 percent to $14.80 an ounce.
Platinum and palladium were roughly flat at $793 and $915, respectively.
(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Kirsten Donovan)