Rampant dollar, rising yields drag gold to 2-1/2-year trough

Gold hurtled back to a 2-1/2-year low on Wednesday, as the U.S. dollar and Treasury yields advanced to multi-year peaks on bets for more aggressive interest rate hikes, reducing appetite for the non-yielding metal, Reuters reported.

Spot gold was down 0.5% to $1,620.88 per ounce, as of 0634 GMT, after hitting its lowest since April 2020. U.S. gold futures dropped 0.4% to $1,629.70.

“The backdrop has been greater rate-hike expectations, the pricing in of a more hawkish Fed, a strong U.S. dollar and higher real interest rates… None of that bodes well for gold,” said Ilya Spivak, a currency strategist at DailyFX, adding $1,600 was the next big inflection point for the metal.

Gold, traditionally seen as a safe-haven asset, has failed to benefit of late, even as rising rates worsen recession fears and fuel a rout in stock markets, with most investors opting for the safety of the dollar instead.

The dollar index scaled a new two-decade high, making gold more expensive for buyers holding other currencies.

Also hurting gold, benchmark U.S. 10-year Treasury yields rose to 4% for the first time since 2010.

Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari echoed the U.S. central bank’s pledge to focus on tackling soaring inflation.

Evans said the Fed would need to raise interest rates to a range between 4.50% and 4.75%.

Spot gold may retest a support at $1,619 per ounce, with a good chance of breaking below this level and falling towards $1,599-$1,607, according to Reuters technical analyst Wang Tao.

Elsewhere, silver was down 1.8% to $18.09 per ounce after hitting a three-week low. Platinum was down 1.3% at $837.23 after touching its lowest since Sept. 5, while palladium shed 1.3% to $2,059.63.