Gold slides over 1% as U.S. yields jump on rate hike bets

Gold prices dropped more than 1 per cent to hit a seven-week low yesterday, as the dollar strengthened and U.S. Treasury yields surged on expectations of sooner-than-expected hike in interest rates by the Federal Reserve.

Spot gold was down 0.8 per cent at $1,736.81 per ounce by, after falling to its lowest since Aug. 11 to $1,726.19 earlier in the session.

U.S. gold futures settled 0.8 per cent lower at $1,737.5 per ounce.

“The dot plots set by FOMC members signalling an earlier-than-previously-expected rise in Fed’s fund rates, and the move higher across the yield curve continue to have a negative impact on gold,” Bart Melek, head of commodity strategies at TD Securities said.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

Benchmark U.S. Treasury yields rose back above 1.5 per cent to their highest in more than three months, with markets starting to price in higher future inflation.

Some investors view gold as a hedge against higher inflation that could follow stimulus measures, but higher Treasury yields dull some of the appeal of the non-yielding commodity.

Indicative of sentiment, holdings of the SPDR Gold Trust fell 0.3 per cent to 990.32 on Monday.

Meanwhile, Fed Chair Jerome Powell said the U.S. economy was still far from achieving maximum employment, a key component of the central bank’s requirements for raising interest rates.

The dollar index rose 0.3 per cent, making gold more expensive for holders of other currencies.

“The USD has been further appreciating over the past few days, which is adding to the pressure on gold prices. Market participants appear to expect earlier rate hikes to be implemented by the Fed,” Commerzbank analysts said in a note.

Elsewhere, silver slipped 0.9 per cent to $22.44 per ounce, palladium fell 3 per cent to $1,905.94, while platinum dipped 0.5 per cent to $975.93.

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