- Gold prices dropped to a two-month low amid a stronger US dollar and high Treasury yields
- Spot gold fell 1.6% to $4,096.13 per ounce, its lowest since August 5
- US 10-year Treasury yields hit a 20-year high, challenging non-yielding gold
Gold prices slipped to a two-month low on Wednesday as a stronger US dollar and elevated US Treasury yields took some shine off the precious metal's safe-haven appeal.
Spot gold fell 1.6% to $4,096.13 an ounce by 9:20 a.m. EDT (1320 GMT), touching its lowest level since August 5. US gold futures for December delivery also declined 1.6% to $4,121.70.
At 9:00 p.m. IST, XAU/USD (Gold Spot US Dollar) was at $4,103.31, down $60.66 or 1.46%, according to real-time market data.
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Reuters reported that the decline came as the US dollar strengthened, with the dollar index rising 0.7%. A firmer greenback makes dollar-denominated gold more expensive for buyers using other currencies, weighing on demand.
At the same time, 10-year US Treasury yields were at their highest level in more than two decades, further challenging gold, which does not offer an interest or coupon income.
"The market is still pricing in at least one rate hike before year end. So I think the message is rates are going to continue to be higher for longer, and that's keeping yields and the dollar underpinned," Peter Grant, vice president and senior metals strategist at Zaner Metals, said.
Markets are largely expecting the US Federal Reserve to leave interest rates unchanged later this month. However, traders are still pricing in an 84% probability of a rate hike in December, according to the CME FedWatch tool.
The prospect of higher-for-longer interest rates is a headwind for gold. Higher yields increase the opportunity cost of holding a non-yielding asset, making bonds and other interest-bearing investments relatively more attractive.
Investors were also awaiting the minutes of the Fed's September meeting, due at 2:00 p.m. EDT (1800 GMT), for clues on the central bank's policy path.
Reuters reported that the recent comments from Fed officials have added to the uncertainty. Kansas City Fed President Jeff Schmid said further rate increases may be required to curb inflation, while San Francisco Fed President Mary Daly said future policy would depend on how inflationary pressures evolve.
Still, gold has some support from official-sector demand. China's central bank increased its gold purchases in September, extending its buying streak to a 23rd consecutive month, official data showed.
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Grant said gold could see another test of lower levels before recovering. "I think we could see one more test to the downside, perhaps as low as $4,000, and then a recovery into year-end with potential to reach $4,400," he said.
Elsewhere in precious metals, spot silver fell 2.9% to $59.89 an ounce, platinum dropped 4.8% to $1,620.38, while palladium declined 4.2% to $1,122.75.
Meanwhile, oil prices rose amid continuing Middle East supply risks and a storm approaching oil-producing regions in the US.
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