Gold dips as Fed rate hike looms, US bond yields firm

GOLD prices edged lower on Wednesday (May 4), as an uptick in US Treasury yields and an impending hike in interest rates by the US Federal Reserve dented demand for zero-yield bullion.

Spot gold was down 0.1 per cent at US$1,865.31 per ounce, as of 12.40 am GMT. US gold futures fell 0.2 per cent to US$1,866.10.

Benchmark US 10-year Treasury yields on Wednesday firmed after backing off the key 3 per cent mark in the previous session, ahead of an expected Fed decision to deliver an aggressive 50 basis-point interest-rate hike to contain soaring inflation.

The US central bank's Federal Open Market Committee is set to announce its decision on rates later on Wednesday, and detail plans to reduce the Fed's US$8.9 trillion balance sheet.

While gold is seen as an inflation hedge, higher short-term US interest rates and bond yields tend to increase the opportunity cost of holding bullion, which yields nothing.

The dollar remained close to 20-year peaks, making gold less attractive for overseas buyers.

Bullion is also seen as a safe store of value during times of economic and political crises.

Russian forces pounded targets in eastern Ukraine on Tuesday, even as the European Union prepared to slap oil sanctions on Moscow.

Spot silver dipped 0.1 per cent to US$22.54 per ounce, platinum firmed 0.1 per cent to US$962.60, and palladium eased 0.1 per cent to US$2,252.51. REUTERS