* Palladium marks biggest daily decline since Dec. 21
* Dollar hits over five-week high vs euro (Updates settlement prices)
By Eileen Soreng
Jan 24 (Reuters) - Gold steadied on Thursday following initial losses, supported by uncertainties surrounding a government shutdown in the United States and its trade relations with China, but gains were capped by a stronger dollar.
Spot gold inched down 0.1 percent to $1,280.20 an ounce at 2:57 p.m. EST (1957 GMT), after earlier hitting a trough at $1,276.59.
U.S. gold futures settled down 0.3 percent to $1,279.80.
“There are enough supporting factors like the U.S. government shutdown and recent stock market volatility to keep gold in this tug of war,” said Josh Graves, senior commodities strategist at RJO Futures in Chicago.
“Right now because the stock markets have bounced, we saw a little bit of pullback and greater risk-on attitude, which is keeping gold in check,” he said.
European Central Bank Chief Mario Draghi’s earlier comments warning of weaker near-term growth in the euro zone saw the dollar rise to a more than five-week high against the euro.
The MSCI global stock index clung to a small gain, and U.S. Treasuries were in demand after Draghi said risks to euro zone growth had shifted to the downside and the United States was cautious on prospects for a trade deal with China.
On the technical front, gold’s repeated attempts to cross the key psychological resistance at $1,300 per ounce have not yet come to fruition.
Gold is stalling any moves as it awaits the culmination of high-level U.S.-China trade talks due next week, RJO’s Graves said.
“If there’s some optimism from that meeting, we will see gold take a plunge, if not, that would be a catalyst that can push gold above that $1,300 level,” he added.
Key economic concerns have given gold a solid foundation despite a firmer dollar, which makes the yellow metal more expensive for holders of other currencies.
Gold prices have gained over 10 percent since touching 1-1/2-year lows in mid-August, mainly because of dampened risk sentiment amid fears of a global slowdown, expectations of a pause in U.S. interest rate hikes, and more recently, the prolonged U.S. government shutdown.
White House economic adviser Kevin Hassett said in a CNN interview that the U.S. economy could register zero growth in the first three months of 2019 if the partial government shutdown lasts the whole quarter.
“The macroeconomic backdrop is more positive for gold, which we think will continue to benefit from safe-haven demand this year,” analysts at Capital Economics said in a research note, and forecast gold prices at $1,350 per ounce by year-end.
“Investor inflows look set to continue given our expectation of further falls in global equity markets and slower economic growth,” they said.
Among other metals, palladium, which hit a record high of $1,434.50 an ounce last week on low inventories and rising demand, registered its biggest intraday percentage decline since Dec. 21, falling 2.1 percent to $1,318.50.
Silver was 0.5 percent lower at $15.28 per ounce while platinum gained 0.3 percent to $796.50. (Reporting by Eileen Soreng, Arijit Bose and Harshith Aranya in Bengaluru Editing by Leslie Adler)