Gold slipped on Tuesday as concerns over an escalating trade war between the United States and China battered emerging market currencies and prompted investors to seek perceived safety in the dollar.
A stronger greenback makes dollar-priced gold costlier for non-U.S. investors.
The U.S. dollar index rallied as the public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end on Thursday, after which Washington can follow through on plans to impose tariffs on $200 billion more of Chinese imports.
Emerging market currencies such as the Argentine peso, Turkish lira, South African rand, Brazilian real, Indonesian rupiah and Indian rupee sank as investors fear these export-oriented economies will be caught in the escalating trade war.
The dollar's status as the chief reserve currency makes it the primary beneficiary of trade conflicts.
"As long as the dollar focus remains strong, upside potential seems limited (for gold)," said Saxo Bank's head of commodity strategy Ole Hansen.
He added, however: "I don't really see a new low in gold (either). The Chinese yuan has been major driver for weakness (in gold) and it has stabilized over the past couple of weeks after the central bank signaled they're prepared to stabilize it."
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