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Gold gains as souring U.S.-China relations hit risk appetite

(Reuters) - Gold prices rose to their highest levels in nearly two weeks on Wednesday as U.S. Senate action on Hong Kong created a potential obstacle to a trade deal between the United States and China, denting appeal for riskier assets.

FILE PHOTO: A one kilo gold bar is displayed in a shop in Dubai's gold souk, April 11, 2006. REUTERS/Tamara Abdul Hadi/File Photo

Spot gold was rose 0.2% to $1,475.83 per ounce at 1139 GMT and U.S. gold futures was up 0.1% at $1,476.20.

“The U.S. senate passing the Hong Kong democracy bill is raising further risk of a trade deal running into problems and it’s causing some renewed risk-off in the markets,” said Saxo Bank commodity strategist Ole Hansen.

“We see stocks trading weaker, bond yields moving lower and gold is ticking higher.”

The U.S. Senate passed two bills backing human rights in Hong Kong and banning export of certain munitions to the region’s police forces. China condemned the move and called for Washington to stop meddling in its internal affairs.

European stocks edged away from their recent peak. U.S. 10-year bond yields slipped to their lowest in nearly three weeks, also pressured by U.S. President Donald Trump’s threat to raise tariffs on Chinese imports if a trade deal cannot be reached with Beijing.

Investors are also waiting for the minutes from the U.S. Federal Reserve’s October policy meeting, due at 1900 GMT, for additional cues on the monetary policy outlook.

The U.S. central bank cut interest rates three times this year to help sustain U.S. growth but last month signalled that there would be no further cuts unless the economy takes a turn for the worse.

“The market is pricing in one cut over the next 12 months and that will change very quickly on failure to reach a (trade) deal,” Saxo Bank’s Hansen added.

Lower interest rates reduce the opportunity cost for holding non-yielding bullion.

Spot gold could rise into a range of $1,480-$1,485 an ounce, according to Reuters technical analyst Wang Tao.

Silver was flat at $17.15, platinum edged 0.1% higher to $911.16 and palladium rose 0.2% to $1,766.37.

Palladium prices could continue to firm on supply issues, and $2,000 an ounce is a likely scenario for the autocatalyst metal next year, said Ross Norman, a London-based independent analyst.

The metal hit a record high of $1,824.50 on Oct. 30, buoyed by a sustained supply deficit.

Reporting by Asha Sistla in Bengaluru; Editing by David Goodman and Jane Merriman