Gold dented by Treasury yields and expected policy tightening

·2 min read
FILE PHOTO: Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich

By Nakul Iyer

(Reuters) - Gold prices extended losses on Wednesday as firmer U.S. Treasury yields and expectations that the U.S. Federal Reserve and peers could finally announce the unwinding of economic support served to heap pressure on the metal.

Spot gold fell 0.4% to $1,786.20 an ounce by 0852 GMT, making for a 1.6% decline since rallying to a more than one-month high last week. U.S. gold futures dropped 0.4% to $1,786.00.

"Markets are pricing in a higher probability of rate hikes for 2022 ... (with) some traders betting that the Fed could hike rates twice next year," said Xiao Fu, head of commodities markets strategy at Bank of China International.

With investors awaiting Thursday's European Central Bank meeting and the U.S. Federal Open Market Committee policy meeting on Nov. 3, the market remained quiet on Wednesday, she added.

Benchmark 10-year U.S. Treasury yields firmed above 1.6%, meanwhile, increasing the opportunity cost of holding non-yielding gold.

Reduced stimulus and higher interest rates tend to push up government bond yields, dimming bullion's appeal.

Gold investors also seemed to take little notice of a dip in the dollar. Bullion typically gains on a weaker dollar because gold becomes cheaper for buyers holding other currencies.

"Talking short-term, and considering the ongoing risk-on environment, it seems unlikely that gold will find support," said ActivTrades senior analyst Ricardo Evangelista.

However, a shift in confidence could arise as the U.S. dollar coming under pressure and other central banks also start tightening policy, he added.

Elsewhere, spot silver edged 0.9% lower to $23.92 an ounce, platinum shed 1.2% to $1,014.96 and palladium was down 1.4% at $1,982.98.

(Reporting by Nakul Iyer in Bengaluru; Editing by Subhranshu Sahu)

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