Gold fell on Tuesday as Treasury yields climbed, although the metal held above the key $1,900 support level on growing expectations that U.S. lawmakers would agree on new stimulus legislation to blunt the economic impact of the coronavirus.
Spot gold fell 0.6% to $1,901.89 per ounce, having risen to its highest level since Sept. 21 at $1,920.71. U.S. gold futures settled 0.6% lower at $1,908.80.
"The reason that the market is hoping for a fiscal deal is because in our view, gold has actually conditioned from a safe haven asset into an inflation hedge asset," said Daniel Ghali, commodity strategist at TD Securities.
"As an inflation hedge asset, the bottleneck here is actually inflation expectation. The market would need to see them rise further to pull real rates lower and gold higher."
U.S. long-dated Treasury yields climbed to four-month peaks with the focus on prospects for a new coronavirus U.S. stimulus package after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke on Monday about fresh relief measures.
Gold tends to benefit from widespread stimulus measures from central banks as it is widely viewed as a hedge against inflation and currency debasement.
Federal Reserve Chair Jerome Powell warned the U.S. economic recovery remains far from complete and could still slip into a downward spiral if the coronavirus is not effectively controlled and growth sustained.
"Gold prices have softened as the dollar has benefited following Fed Chair Powell's comments that too little fiscal support would lead to a weak recovery," said Standard Chartered analyst Suki Cooper.
"Tactical positioning remains relatively light ahead of the U.S. election, however prices are likely to toy with $1,900/oz in coming sessions given the wide range for support and resistance levels."
Elsewhere, silver shed 1.9% to $23.88 per ounce, platinum declined 3.5% to $865.26 while palladium rose 0.1% to $2,364.95.