Gold slumps to 9-month trough as yields, dollar rally continues

A one-kilogram gold bar sits at Gold Investments Ltd. bullion dealers in this arranged photograph in London, U.K., on Wednesday, July 29, 2020.
Chris Ratcliffe | Bloomberg | Getty Images

Gold prices slid more than 1% on Monday to a nine-month low, as the dollar and U.S. Treasury yields kept rising, prompting investors to dump the non-yielding metal.

Spot gold fell 1.1% to $1,681.41 per ounce by 1:47 p.m. EST (1847 GMT), after hitting its lowest since June 5 at $1,676.10. U.S. gold futures settled 1.2% down at $1,678.

The dollar climbed to a three-month peak, while the U.S. 10-year Treasury yield held near a more than one-year high, raising the opportunity cost of holding the non-interest bearing metal.

"We have an economy that is recovering and inflation is materializing; that ultimately means yields have room to move higher," said Bart Melek, head of commodity strategies at TD Securities, adding that gold could fall towards $1,660 from the fallout.

Melek also noted that an unexpected jump in U.S. nonfarm payrolls and a strong stock market were more a reflection of an improving economy and less of "critically high" inflation.

Gold is seen as a hedge against inflation.

U.S. Congressional approval of President Joe Biden's $1.9 trillion COVID-19 relief plan failed to keep the metal afloat.

Analysts also said U.S. Federal Reserve Chair Jerome Powell's failure to address the recent surge in U.S. yields last week further pressured gold.

Though markets have not got much pushback from the Fed on yields, few doubt the Fed is not going to act eventually and with rate hikes unlikely this year, that should support gold, said Edward Moya, senior market analyst at OANDA.

But in the near-term gold could trade between $1,650 and $1,700, with a move below $1,650 likely to invite some selling pressure, he added.

Reflective of sentiment, SPDR Gold Trust holdings, the world's largest gold-backed exchange-traded fund, fell to a 10-month low on Friday.

Silver fell 0.2% to $25.14 an ounce. Palladium fell 1% to $2,314.83, while platinum rose 1.2% to $1,143.42.