Gold prices dipped on Wednesday towards the previous session’s one-week low as the prospect of aggressive rate hikes by the U.S. Federal Reserve sent benchmark Treasury yields to two-year highs, reducing the appeal of non-yielding bullion.
Spot gold was down 0.1% at $1,812.27 per ounce, as of 0513 GMT, after falling to a one-week low of $1,805 an ounce on Tuesday. U.S. gold futures dipped 0.1% to $1,811.10.
“We seem to be coiling up for some kind of breakout, likely on the downside, as the handoff occurs where inflation expectations start to slow down while nominal rates shift up around expectations for central bank action and that starts to really bid up real yields,” said DailyFX currency strategist Ilya Spivak.
Gold is considered an inflationary hedge, but higher interest rates tend to weigh on the precious metal.
“It looks like the momentum behind rising real rates will keep gold on the defensive, so expecting gold to test the $1,800 – $1,792 level,” said Nicholas Frappell, a global general manager at ABC Bullion.
Benchmark U.S. Treasury yields jumped to two-year highs as traders await the Fed meeting on Jan. 25-26, expecting a more aggressive tone in tackling unabated inflation, which is the highest in nearly 40 years.
Adding to inflationary pressures, oil prices rose to a seven-year high as an outage on a pipeline from Iraq to Turkey increased supply concerns amid worrisome geopolitical troubles in Russia and the United Arab Emirates.
“It’s very tempting to look at the geopolitical backdrop as something that people think about when they consider gold … (although) gold doesn’t seem to be behaving that way at the moment. It seems sort of firmly anchored to this Fed narrative,” Spivak added.
Spot silver fell 0.3% to $23.38 an ounce, platinum slipped 0.9% to $972.11, and palladium was down 0.4% at $1,890.18.