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PRECIOUS-Gold scales over 3-week peak as dollar slips

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* Trump and Xi agree on 90-day trade truce to negotiate

* Speculators raise net short position in COMEX gold- CFTC (Adds comments, updates prices)

By Eileen Soreng

BENGALURU, Dec 3 (Reuters) – Gold prices hit a more than three-week high on Monday on a weaker dollar, as a trade ceasefire between the United States and China revived investor demand for riskier assets.

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Washington and Beijing agreed to halt additional tariffs in a deal that keeps their trade war from escalating as the two sides try again to bridge their differences with fresh talks aimed at reaching an agreement within 90 days.

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Spot gold climbed about 0.7 percent to $1,230.78 per ounce at 0725 GMT, having touched its highest level since Nov. 7 at $1,231.34 earlier in the session.

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U.S. gold futures were up 0.8 percent at $1,235.2 per ounce.

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“Dollar has edged down from its high, supporting gold,” said Hareesh V, head of commodity research at Geojit Financial Services, adding that the market would keep a close watch on what the U.S. and China intend to do during and after the 90-day ceasefire period.

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The dollar index, which measures the greenback against a basket of six major currencies, was down about 0.5 percent

The U.S. currency has been the preferred safe haven this year as the U.S.-China trade war unfolded against a backdrop of higher U.S. interest rates, denting the bullion’s appeal

However, the greenback came under pressure last week after Federal Reserve Chairman Jerome Powell said interest rates are just below neutral, raising expectations that the U.S. central bank is closer to the end of its rate hike cycle

The over pessimism in bullion space on account of interest rate moving up is overdone and this is the right time to accumulate gold,” said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai, India, adding, “by December 31 we can see COMEX gold at $1,250.”

Gold tends to gain when rate hike expectations recede because lower rates reduce the opportunity cost of holding non-yielding bullion. Lower interest rates also tend to weigh on U.S. yields and the dollar, in which gold is priced

If the Fed is worried about growth and makes it known more clearly, then the market could possibly see a further boost to gold, said John Sharma, an economist with National Australia Bank (NAB)

Powell is scheduled to testify before a congressional Joint Economic Committee later this week

Analysts see the yellow metal supported in the near-term on political and economic risks such as uncertainties over Brexit and Italy’s budget, and the recent unrest in Paris

Among other precious metals, palladium gained nearly 1 percent to $1,188.49 per ounce, after having crossed the $1,200 mark for the first time on Friday

Spot silver climbed 1.6 percent to $14.40 per ounce, while platinum rose nearly 2 percent to $812.10 per ounce

Speculators increased their net short position in gold by 8,464 contracts to 51,828 contracts in the week to Nov. 27, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. (Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)