Gold prices declined sharply on Monday amid climbing US borrowing costs and market expectations of continued Federal Reserve interest rate hikes, impacting its traditional appeal as a safe haven.
Gold prices came under renewed pressure on Monday as US borrowing costs climbed to multi-year highs and traders increased bets that the Federal Reserve will keep interest rates elevated. Spot gold briefly dropped by as much as 4% to $4,111 an ounce, its weakest level since 5 August, before trimming some of the loss, according to Reuters.
The latest slide reflected a familiar burden for bullion: gold pays no income, so rising Treasury yields make interest-bearing assets more attractive. Reuters reported that the benchmark 10-year US Treasury yield reached its highest level since June 2007, while two-year yields, which are more closely tied to policy expectations, have risen sharply as markets price in a roughly 70% chance of another Fed rate increase in October.
Adrian Ash, head of research at bullion marketplace BullionVault, told Reuters that the move in borrowing costs had finally forced the metal lower after a period of resilience. His view comes after several weeks in which gold had held up better than many traders expected, even as yields rose and the Federal Reserve resumed tightening earlier this month, according to market commentary cited by other reports.
Still, the broader picture is not entirely one-sided. The World Gold Council said gold-backed exchange-traded funds saw modest outflows last week, but total holdings remained substantial at 4,249 tonnes. Reuters also said demand in China has softened ahead of the October holiday period, while StoneX analyst Rhona O’Connell pointed to potential support from central-bank buying and seasonal demand in India ahead of Diwali and the wedding season. Yet she warned that gold’s record-high price could curb jewellery purchases, especially among price-sensitive buyers such as farmers if India’s monsoon stays weak.
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