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Gold prices ticked higher on Tuesday as brewing US-China tension over Hong Kong lifted demand for the safe-haven metal, but the easing of coronavirus-induced curbs supported equities and capped further gains in bullion.
Spot gold rose 0.2 per cent to $1,731.80 per ounce by 0523 GMT. US gold futures were also down 0.2 per cent to $1,731.80.
"The key supportive factor for the (gold) market is rising tensions between China and the US, and if we see a further escalation, we would see another move higher in gold," said ING analyst Warren Patterson.
China's foreign ministry office in Hong Kong and the city's security chief defended proposed security laws by describing some acts in mass pro-democracy protests last year as terrorism.
The proposed legislation could lead to US sanctions on Hong Kong and China, and threaten the city's status as a financial hub, White House National Security Adviser Robert O'Brien said on Sunday.
Gold is seen as a safe-haven asset during political and economic uncertainties.
One of the factors keeping a cap on gold prices is the easing of lockdown restrictions, said Patterson, adding that, "people are getting more positive on recovery."
Asian shares gained ground on expectations of an economic recovery and as investors focussed on more stimulus in China. The dollar index was down 0.2per cent, making gold cheaper for holders of other currencies.
Helping risk-on sentiment, a survey showed on Monday that German business morale rebounded in May, recovering from its most dramatic fall on record the previous month.
"As long as (gold) holds above $1,700, the bias is clearly positive," said Harshal Barot, research consultant for South Asia at Metals Focus.
Investors are also awaiting the US consumer confidence data due at 1400 GMT.
Among other precious metals, palladium gained 1.6 per cent to $2,023.83 per ounce, and silver rose 1.1 per cent to $17.39. Platinum fell 0.2 per cent to $836.45. - Reuters
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