Gold prices inch up as trade row triggers safe-haven buying

Gold prices inched higher on Monday after falling to a 5-1/2-month low in the previous session, as a trade dispute between the world`s two largest economies triggered safe-haven buying, but a strong dollar put a cap on the upside.

Spot gold edged up 0.1 percent to $1,279.70 per ounce by 0255 GMT. The yellow metal touched its weakest since late December at $1,275.01 an ounce on Friday.

U.S. gold futures for August delivery were up 0.3 percent at $1,282.10 per ounce.

"The U.S. dollar strength is weighing on investor sentiment at the moment rather than any concerns about weaker economic growth due to the trade tensions," said ANZ analyst Daniel Hynes.

The dollar index, which measures the greenback against a basket of six major currencies, edged up 0.1 percent to 94.889, hovering close to a seven-month high touched in the previous session.

U.S. President Donald Trump on Friday said he was pushing ahead with hefty tariffs on $50 billion of Chinese imports, and the smoldering trade war between the world`s two largest economies showed signs of igniting as Beijing immediately vowed to respond in kind.

Gold is often used by investors as a hedge against political and financial uncertainty.

"Risk appetite will likely stay weak into the trading day ahead following intensified trade concerns," OCBC said in a note.

Meanwhile, Asian shares retreated on Monday after Trump cranked up the trade tensions with China.

South Korea and the United States are expected to announce the suspension of "large-scale" military drills this week, with the provision that they would restart if North Korea failed to keep its promise to denuclearise, news agency Yonhap said on Sunday.

Hedge funds and money managers raised their net long position in COMEX gold by 6,506 contracts to 64,572 contracts in the week to June 12, U.S. data showed on Friday. This was the highest net long position in gold since late April.

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Speculators also raised their net long position in silver to the strongest in 6-1/2 months.

Silver fell 0.3 percent to $16.46 per ounce.

Platinum was down 0.1 percent at $886.30 an ounce. It touched a four-week low on in the previous session.

Palladium was 0.1 percent lower at $985.75 an ounce.