Gold drops over 1% as U.S. Treasury yields, dollar rise

GOLD - JAKARTA. Gold prices fell more than 1% on Wednesday as surging U.S. Treasury yields and a firmer dollar dented demand for the safe-haven metal.

Spot gold was down 0.9% at $1,787.96 per ounce by 10:14 a.m. ET (1514 GMT). U.S. gold futures slipped 1.1% to $1,786.80.

"Rising bond yields continue to weigh on the gold market. Gold has not found any path to a sustainable recovery even with talks about additional stimulus measures," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

U.S. benchmark 10-year Treasury yields touched 1.4% for first time since February 2020, while the dollar index rose 0.2%, making gold more expensive for holders of other currencies. Rising yields tend to hurt bullion's appeal as an inflation hedge since they increase the opportunity cost of holding the metal.

In his testimony before the U.S. Senate, Federal Reserve Chair Jerome Powell on Tuesday said monetary policy still needed to be accommodative with economic recovery "uneven and far from complete". His testimony continues on Wednesday. He also attributed the increase in bond yields to higher inflation and growth expectations.

"Powell doesn't seem to be concerned with rising 10-year yields, which is really bad for gold. If he did at least acknowledge that 10-year yields are rising at alarming rates and (indicated) the Fed may institute yield curve control, that would have boosted gold," Streible said.

Investors also kept a close watch on developments over a $1.9 trillion U.S. coronavirus relief package, which could contribute to a speedy economic recovery but at the cost of rising inflation. Elsewhere, silver eased 0.3% to $27.54 an ounce.

Platinum climbed 1.2% to $1,251.58, while palladium gained 1.1% to $2,375.44. The market expects the price difference between gold and platinum to narrow amid an outlook for higher demand for automobile catalytic converters due to new green technologies, according to Saxo Bank analyst Ole Hansen.