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Gold gains as U.S.-China trade uncertainty lingers

(Reuters) - Gold firmed on Friday as doubts persisted over the prospects of an interim trade deal being struck between United States and China this year, while supply-squeezed palladium was en route to its best week in 10.

FILE PHOTO: Melted gold flows out of a smelter into a mould of a one kilogram bar at a plant of gold refiner and bar manufacturer Argor-Heraeus SA in the southern Swiss town of Mendrisio November 13, 2008. REUTERS/Arnd Wiegmann/File Photo

Spot gold was up 0.2% at $1,467.26 an ounce by 0747 GMT. U.S. gold futures rose 0.3% to $1,467.40.

China wants to work out an initial trade pact with the United States, but is not afraid to retaliate if necessary, President Xi Jinping said. Beijing has invited top U.S. trade negotiators for a new round of face-to-face talks.

“The market doesn’t have faith in a trade deal, and it doesn’t think the second round of talks will be very successful, as the decisions from the first (round of talks) are yet to be implemented,” said Vandana Bharti, assistant vice-president of commodity research at SMC Comtrade.

The tariff war between the world’s top two economies has propelled gold, traditionally a safe asset in times of political and economic uncertainty, about 14% higher this year, on track for its biggest yearly gain since 2010.

Investors were also wary that bills passed by Washington to support anti-government protesters in Hong Kong, which has been paralysed by demonstrations for more than five months, could thwart progress towards an interim trade deal.

“On one hand, they are talking about positive trade talks, on the other hand they are talking on the sensitive issue of Hong Kong. So, ultimately it is giving an upper hand to gold prices,” Bharti said.

The trade dispute was a key factor, against the backdrop of a hold on monetary policy easing by the U.S. central bank, another analyst said.

“The trade deal is definitely the theme at the moment as it looks like the U.S. Federal Reserve’s easing is on hold, so anything positive about the trade dispute is clearly negative for gold and any delay is positive,” said Nicholas Frappell, global general manager at ABC Bullion.

The Fed has cut interest rates three times this year to help shield the economy from the effects of the trade war before deciding to pause.

Lower interest rates reduce the opportunity cost for holders of bullion, an asset that brings no interest.

Elsewhere, platinum dipped 0.7% to $908.85 per ounce, but was on track to add about 2% for the week.

Silver rose 0.3% to $17.14.

Palladium traded unchanged at $1,761 per ounce, but eyed its best week in 10, gaining more than 3%. The metal, used in vehicle exhaust systems to reduce harmful emissions, jumped to a record high of $1,824.50 last month on a sharp supply crunch.

Reporting by Sumita Layek in Bengaluru; Editing by Shailesh Kuber and Uttaresh.V