Gold Drifts Lower From 6-Month High on Dollar Uptick

GOLD - JAKARTA. Gold prices on Wednesday fell from last session's six-month peak as the U.S. dollar firmed and Treasury yields remained elevated, while investors weighed the worsening COVID situation in top bullion consumer China.

Spot gold fell 0.5% to $1,804.48 per ounce by 1226 GMT, having hit its highest since the end of June on Tuesday. U.S. gold futures dropped 0.6% to $1,811.60.

The dollar index steadied and benchmark 10-year yields held close to their highest levels in more than a month.

"I still see, near term, the Fed rate hikes as a headwind for gold, but once the U.S. economy slows down and the Fed indicates it is done with rate hikes, expect a more favourable environment for the yellow metal," UBS analyst Giovanni Staunovo said.

Bullion has risen nearly $200 from a more than two-year low, hit in September, on expectations that the U.S. central bank would slow its pace of interest rate hikes, increasing the appeal of the non-yielding asset.

"(If) the COVID situation worsens again in China, this can be potentially negative for gold. But, at the same time can push (central) banks to be more dovish, and that would be positive for gold," said Carlo Alberto De Casa, external analyst at Kinesis Money.

China on Monday scrapped its COVID-19 quarantine rule for inbound travellers even as hospitals and funeral homes were under intense pressure from surging COVID-19 cases.

The dollar's performance, inflation data, Fed's rate hike path, developments in China and geo-political tension will be major factors influencing gold prices in 2023, said Hareesh V., head of commodity research at Geojit Financial Services.

Traders now await the U.S. pending home sales report due later in the day, and Thursday's initial jobless claims.

In other precious metals, spot silver fell 0.6% to $23.89 per ounce while platinum gained 0.6% to $1,026.42.

Palladium slipped 1.4% to $1,803.35