Gold falls back as US yields, dollar advance

Gold inched lower on Wednesday after posting its biggest jump in two months a day earlier, as firmer US Treasury yields and dollar eroded the metal's appeal. Spot gold eased 0.2 per cent to $1,712.60 per ounce by 0836 IST, after rising more than 2 per cent on Tuesday as US yields dropped and the dollar eased from multi-month highs.

US gold futures fell 0.4 per cent to $1,710.50. "There's an element of corrective price action after a very spirited gold rebound in the preceding 24 hours. (And) gold has been falling largely against the backdrop of yields rising," said DailyFX currency strategist Ilya Spivak.

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US yields recovered on Wednesday, reducing the appeal of holding gold, while the dollar also bounced back. A steady rise in bond yields makes holding gold less attractive as investors typically tend to gravitate toward assets that generate steady income in the form of interest or dividend.

The $1.9 trillion US Covid-19 relief bill has cleared a procedural vote in the House of Representatives and is expected to be considered and passed on Wednesday. Large global stimulus measures to combat the economic fallout of the pandemic have fanned worries of higher inflation and lifted bond yields.

The European Central Bank will discuss on Thursday the merits of intervening to bring yields down.

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A massive US stimulus, loose global monetary policy, widespread vaccine rollouts and reopening of economies are "potentially very inflationary and might force the Federal Reserve to tighten policy meaningfully sooner, which would be a really big headwind for gold," Spivak said.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell to the lowest since April on Tuesday.

Silver dipped 0.4 per cent to $25.78 an ounce. Palladium rose 0.2 per cent to $2,300.71, while platinum fell 1 per cent to $1,156.94. More platinum deficits loom this year after a record undersupply of almost a million ounces in 2020, the World Platinum Investment Council said.