Gold gains in thin holiday trade as investors seek more Fed cues

By Arundhati Sarkar

(Reuters) - Gold prices edged higher on Tuesday as some traders bet that recent weak U.S. economic data may prompt the Federal Reserve to rethink its rate-hike trajectory, while also awaiting further cues from the minutes of the central bank's last meeting.

Spot gold rose 0.4% to $1,928.09 per ounce by 09:31 a.m. EDT (1331 GMT), with trading volumes likely thinned by a U.S. holiday.

U.S. gold futures gained 0.3% to $1,935.90.

"Weaker-than-expected U.S. economic data released on Monday, including PMIs, have supported gold. Market participants will closely track upcoming U.S. job market data, watching if previous U.S. interest rate hikes will slow down the U.S. economy," UBS analyst Giovanni Staunovo said.

But the minutes of the Fed's June meeting on Wednesday could "sound hawkish in line with the recent testimony of Jerome Powell", Staunovo added.

Investors see a nearly 86% chance of a 25-basis-point hike in July, according to CME's Fedwatch tool. High rates discourage investment in zero-yield gold.

Focus this week will also be on non-farm payrolls data, after U.S. manufacturing slumped in June.

"Right now, headwinds for gold are expectations of a further 50 bps tightening, more liquidity withdrawal and rates remaining relatively elevated for some time," said Nicholas Frappell, global head of institutional markets at ABC Refinery.

Also on the radar were fresh developments in the U.S.-China trade war, with Beijing restricting exports of some metals used in semiconductors, electric vehicles and high-tech industries.

Previous flare-ups also benefited the U.S. dollar, reducing demand for gold. [USD/]

Spot silver rose 0.6% to $23.02 per ounce, and palladium climbed 0.8% to $1,238.92. Platinum jumped 1.4% to $919.06, and was on course for a third consecutive winning session.

"The white metals remain linked to the performance of gold. That said, economic growth concerns have a bigger impact as those metals have a higher industrial usage than gold," Staunovo said.

(Reporting by Arundhati Sarkar and Seher Dareen in Bengaluru; additional reporting by Brijesh Patel; editing by Louise Heavens and Jason Neely)