Firm US dollar, elevated yields push gold prices to 8-1/2-month low

[BENGALURU] Gold prices slumped to their lowest in 8-1/2 months on Tuesday, as a stronger dollar and elevated US Treasury yields eroded investor appetite for the non-yielding metal.

Spot gold was down 0.7 per cent at US$1,711.13 per ounce by 3.10am GMT, having dropped to its lowest since June 15 at US$1,708.60 earlier in the session. US gold futures slipped 0.8 per cent to US$1,709.80.

The potential for higher yields is putting pressure on gold, while a stronger dollar is also contributing to its fall, Michael McCarthy, chief market strategist at CMC Markets said, adding that a minor retreat in 10-year yields was "too small to count".

Benchmark US Treasury yields have come down from a one-year high hit last week, but continue to remain elevated, while the dollar index held near a four-week peak.

"Bond prices are clearly saying that by the mid-year, inflationary pressures will mean that global central banks would have to tighten their policy, while central banks suggest that will not be the case ... if inflation rises, they'll have very little choice," Mr McCarthy said.

While gold is considered a shield against inflation, higher yields have of late threatened that status, since they translate into higher opportunity cost of holding bullion, which pays no return.

European Central Bank policymakers have been dropping hints that the central bank is ready to rein in yields and prevent a premature increase in borrowing costs for firms and households struggling to cope with a pandemic-induced recession.

Focus also remains on the developments of the US$1.9 trillion US coronavirus relief bill that will be debated in the Senate this week.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust fell to their lowest since May 2020 on Monday.

Silver eased 1.6 per cent to US$26.06 an ounce, having earlier dipped to a near one-month low. Palladium slipped 0.2 per cent to US$2,345.67 and platinum fell 0.8 per cent to US$1,175.

REUTERS