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Gold gains as U.S.-China tensions lift safe-haven demand

Kitco News

* U.S.-China tensions over Hong Kong unnerve investors globally

* Palladium eyes best week since end-March

* For an interactive graphic tracking the global coronavirus spread, open in an external browser (Updates prices)

By Brijesh Patel May 22 (Reuters) - Gold prices rebounded on Friday as escalating trade tensions between the United States and China lifted bullion's safe-haven appeal, though a stronger dollar kept gains in check.

Spot gold was up 0.5% at $1,734.39 per ounce by 1105 GMT, after falling 1.4% on Thursday.

U.S. gold futures rose 0.9% to $1,737. "Given the fact that most of the equity markets and other commodities are under pressure right now, the uncertainty around the situation in China and the trade relationship with the U.S. is helping gold," said Commerzbank analyst Eugen Weinberg.

U.S.-China tensions have risen in the past few weeks over the source of the coronavirus pandemic, and China's proposal on Thursday to impose security laws on Hong Kong prompted a strong warning from U.S. President Donald Trump.

The tensions compounded fears of a slower global recovery from the economic damage wrought by the coronavirus, pressuring share markets but supporting the safe-haven U.S. currency. The dollar index jumped 0.5% against its rivals, limiting gold's advance.

Beijing dropped its annual growth target for the first time, highlighting the uncertainty around economic growth that has stalled due to the new coronavirus. Gold, which is used as an insurance during times of political uncertainty, scaled a more than 7-1/2 year peak earlier this week.

It has held ground above the key $1,700 per ounce level, building impetus to reach its 2011 peak in the coming quarters, Fitch Solutions said in a note. Lower-for-longer interest rates with quantitative easing in full swing, macro and geopolitical uncertainty and strong investor flows should continue to support gold prices on a 6-12 month horizon, Fitch added.

Palladium fell 1.6% to $1,981.29 per ounce, but was still on track for its best week since March. Platinum shed 0.5% to $822.25, while silver fell 0.4% to $16.99.

(Reporting by Brijesh Patel and Asha Sistla in Bengaluru; Editing by Pravin Char and Susan Fenton)

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