Firm U.S. yields keep gold under pressure

GOLD - JAKARTA. Gold prices fell on Wednesday for a sixth session in seven, as expectations that U.S. Treasury yields would move higher on further economic stimulus kept non-yielding bullion under pressure.

Spot gold eased 0.2% to $1,734.26 per ounce by 0320 GMT, having dropped to its lowest since June 15 at $1,706.70 on Tuesday. U.S. gold futures dipped 0.1% to $1,732.

"There's a clear trend for gold to the downside, and as long as fiscal stimulus keeps getting pumped into the U.S. economy and the Federal Reserve remains reticent about doing something to quash yields, gold prices will struggle," said IG Market analyst Kyle Rodda.

Investors kept a close eye on the progress of the $1.9 trillion U.S. stimulus bill as the Senate starts debate over the legislation this week. Benchmark U.S. Treasury yields have held near 1.4% levels despite coming down from a one-year high reached last week.

While gold is viewed as a hedge against inflation, higher yields have of late threatened that status, since they increase the opportunity cost of holding bullion, which pays no interest.

Prices can receive a reprieve if "the Fed comes out and says that it'll control yields or we get an outbreak in inflation expectations that implies that it's going to move out of the Fed's control," Rodda said, adding that until then it's "the worst of all worlds for gold."

Analysts say higher yields can force the Fed to tighten monetary conditions sooner than anticipated, which is negative for gold. Fed officials, however, maintain that they will keep their easy money plans in place even in the face of a potential bout of inflation this spring in an economy boosted by vaccines and government spending.

Silver dipped 0.1% to $26.73 an ounce, while palladium climbed 0.4% to $2,372.40. Platinum shed 0.7% to $1,196.15.