By Sethuraman N R
BENGALURU (Reuters) - Gold steadied on Tuesday as the dollar hovered near a one-month low following a trade deal between the United States and Mexico, but concerns around a still developing U.S.-China trade row kept a check on prices of the precious metal.
Spot gold inched 0.1 percent higher to $1,212.33 by 0711 GMT, after falling as much as 0.3 percent earlier in the day. Prices on Monday hit their highest in two weeks.
U.S. gold futures were up 0.2 percent at $1,218.40 an ounce.
Gold has lost its appeal as a safe-haven asset, having fallen over 7 percent this year, amid international trade disputes and the Turkish currency crisis, with investors increasingly turning to the dollar instead.
The dollar index was down 0.1 percent against a basket of six major currencies. The greenback came under pressure on Monday after the United States and Mexico agreed to overhaul the North American Free Trade Agreement.
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"The big elephant in the room is China. The trade escalation with China will play favourably into the U.S. dollar as a risk aversion trade," said Stephen Innes, Asia-Pacific trading head at OANDA in Singapore. "The market is still a little bit nervous overall when it comes to buying into the weaker U.S. dollar narrative."
Gold, however, has recovered after touching 1-1/2-year lows on Aug. 16 at $1,159.60 as the dollar's run slowed after U.S. President Donald Trump criticized the Federal Reserve for raising interest rates at a time when the government was trying to stimulate the economy.
"We need a complete flip around momentum in the U.S. dollar for gold to push above $1,230 and move to $1,260. Unless the Fed takes the December rate hike off the table, gold does not have a chance to get near any of those supportive levels," Innes said.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.
Spot gold may rise to $1,224 an ounce, as it has broken a resistance at $1,209 per ounce, according to Reuters technical analyst Wang Tao.
Net shorts in COMEX gold contracts were at a record high.
"The short positions will not be covered till you see a major trigger for buying," said Amit Kumar Gupta, portfolio management services head at Adroit Financial Services in New Delhi.
Spot silver was up 0.3 percent at $14.87.
Platinum rose 0.7 percent to $804.74, after touching a two-week high of $808.70.
Palladium fell 0.4 percent to $944.75. At $950.25, prices matched the 1-1/2-month highs hit on Monday.
(Reporting by Nallur Sethuraman in Bengaluru; Editing by Joseph Radford, Sunil Nair and Sai Sachin Ravikumar)
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