* Dollar near 6-1/2 month peak
* Italy crisis sparks stock sell-off
* China says ready to fight back if U.S. ignites trade war
* SPDR gold holdings rise 0.35 pct on Tuesday

By Karen Rodrigues
BENGALURU, May 30 (Reuters) – Gold prices edged down on
Wednesday as a robust U.S. dollar weighed on the market, but
concerns about political turmoil in Italy and Sino-U.S. trade
conflict limited losses.
Spot gold was 0.2-percent lower at $1,296 per ounce
by 0736 GMT.
U.S. gold futures for June delivery were down 0.3
percent at $1,295.40 per ounce.
“The stronger dollar is the most significant headwind,” said
Stephen Innes, APAC trading head at OANDA.
“With the yellow metal’s sensitivity to the U.S. dollar on
full display, it is unlikely gold will move significantly higher
until we reach the EU ‘Crisis Zone’ which we are nowhere near at
this stage.”
The dollar index , which measures the greenback
against a basket of six major currencies, hovered near its 6-1/2
month peak touched in the previous session.
Investors fear that repeat elections in Italy – which could
come as soon as July – may become a de-facto referendum on
Italian membership of the currency bloc and the country’s role
in the European Union.
“People are really worried about what’s happening in Europe
and the U.S.-China trade tensions … we also see U.S. bond
yields drop,” said Richard Xu, a fund manager at HuaAn Gold,
China’s biggest gold exchange-traded fund.
U.S. benchmark 10-year Treasury yields on Tuesday registered
their largest one-day drop since Brexit nearly two years ago.

Meanwhile, China on Wednesday lashed out at Washington’s
unexpected statement that it still holds the threat of imposing
tariffs on $50 bln of Chinese goods, saying Beijing was ready to
fight back if Washington was looking to ignite a trade war.

“That (U.S.-China conflict) is driving down risk appetite,
hence the stock markets are tanking,” Xu said.
Asian stocks extended a global sell-off on Wednesday as
Italy’s political crisis rippled across financial markets.

Holdings of SPDR Gold Trust , the world’s largest
gold-backed exchange-traded fund, rose 0.35 percent to 851.45
tonnes on Tuesday.
In other precious metals, spot silver was down 0.6
percent at $16.28 an ounce.
Platinum fell 0.4 percent to $900.45 an ounce, while
palladium was 0.2-percent lower at $977.31.

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