PRECIOUS-Gold holds ground amid strong central bank demand, Fed rate cut prospects

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China's central bank added gold to its reserves in March

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Deustche Bank upgrades gold year-end forecast to $3,350/oz

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Silver up over 2%

(Updates for EMEA morning hours)

By Anmol Choubey

April 7 (Reuters) - Gold prices held steady on Monday, bolstered by strong central bank demand and the potential for an early U.S. Federal Reserve rate cut, but gains were capped as some investors sold bullion to cover losses in other trades.

Spot gold edged down by 0.2% to $3,029.04 an ounce, as of 0909 GMT, after hitting a session low of $2,971.09 earlier in the session.

U.S. gold futures rose 0.4% to $3,046.20.

Major stock indexes across the world plunged as U.S. President Donald Trump showed no sign of backing away from his sweeping tariff plans. China struck back with a slew of counter-measures on Friday, including extra levies of 34% on all U.S. goods and export curbs on some rare earth metals.

"Once the dust settles, the rising recession risks, a weaker dollar, lower real yields and bigger rate cut expectations will all play their part in supporting a rebound," said Ole Hansen, head of commodity strategy at Saxo Bank

"Gold's correction remains a relatively shallow one with key support levels holding, most notably the trendline from the January low at $2,975 ahead of the February highs around $2,955."

Gold was up over 15% this year and hit a record high of $3,167.57 on Thursday, aided by its status as a safe haven amidst economic and geopolitical uncertainties and strong central bank demand.

Meanwhile, China's central bank added gold to its reserves in March for the fifth straight month.

"We conclude that the bull case for gold remains strong despite this week's correction and further upgrade our year-end forecast to $3,350/oz," Deustche Bank said.

Investors are speculating that the increasing risk of a recession might prompt the Fed to cut interest rates by 116 basis points this year, beginning as early as June. Lower rates increases the appeal of bullion as it yields no interest.

Spot silver gained 2.1% to $30.18 an ounce, after marking its lowest level in nearly seven months.

Spot platinum down 0.2% at $915.14, palladium added 0.5% to $916.21. (Reporting by Anmol Choubey in Bengaluru; Editing by Shailesh Kuber)