* Three month target for gold at $1,275-Julius Baer
* Palladium marks 3-month high; platinum hits over one-month peak
* SPDR Gold holdings fell 0.3 tonne Tuesday (Updates throughout)
By Eric Onstad
LONDON, Sept 19 (Reuters) - Bullion bounced on Wednesday as the dollar weakened, indicating investors are starting to worry about the impact of the U.S.-China trade war on the U.S. economy, luring some buyers back into gold investments.
Spot gold climbed 0.6 percent to $1,204.92 an ounce by 1235 GMT after going into the red on Tuesday.
U.S. futures were up 0.4 percent at $1,208 an ounce.
“It appears that investors are beginning to view tariffs - while likely negative for China’s exports - could also prove detrimental to the United States as well, given the disruptive impact on global supply chains,” National Australia Bank economist John Sharma said.
China said on Wednesday it will not stoop to competitive devaluation of its currency, hours after it hit back with a softer punch than the one landed by the United States in an escalating tariff dispute.
Gold prices have declined about 12 percent since April, hurt by the intensifying dispute and on rising U.S. interest rates with investors buying the dollar in the belief the United States has less to lose from the dispute.
The dollar index, which measures the greenback against a basket of major currencies was slightly weaker.
While a strong U.S. economy, rising U.S. interest rates and the rumbling trade dispute may weigh on gold in coming weeks, the market has bottomed out and the long-term direction is up, Julius Baer’s head of commodity research Norbert Ruecker said.
Julius Baer has targeted gold to climb to $1,275 in three months and $1,375 in 12 months.
“Somehow the commodity markets have learned to ignore the trade war, but there will be more noise from this theme, so it remains an uncertain element,” Ruecker said.
“Overall, we are constructive for gold and we are telling our clients to start to build a long-term position. Negative sentiment and positioning looks like it has hit rock bottom, so this will start normalising and support gold,” he said.
Among other precious metals, spot silver rose 0.8 percent to $14.24 an ounce.
Platinum gained 1.5 percent to $821.80, after hitting its highest since Aug. 13 at $822.80 during the session.
Palladium added 1.6 percent at $1,025.60, after marking its highest since June 7 at $1,027.72.
“Used chiefly in the auto industry, palladium profited also from the relief rally enjoyed by base metals. Because platinum hardy kept pace at all, the price gap between palladium and platinum widened,” Commerzbank said in a note.
The spread between the two metals has increased to $204 from $176 a week ago. (Additional reporting by Vijaykumar Vedala and Nallur Sethuraman in BENGALURU, editing by Alexandra Hudson)