Gold falls as yields gain in run-up to Fed rate hike decision

Gold falls as yields gain in run-up to Fed rate hike decision
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BENGALURU (May 4): Gold prices fell on Wednesday, as higher US Treasury yields and a looming interest rate hike announcement by the Federal Reserve dented demand for zero-yield bullion.

Spot gold was down 0.3% at US$1,862.48 per ounce, as of 0217 GMT. US gold futures fell 0.4% to US$1,82.40.

Benchmark US 10-year Treasury yields firmed after backing off the key 3% mark in the previous session, ahead of a widely expected big interest rate hike from the Fed as it attempts to contain soaring US inflation. 

While gold is seen as an inflation hedge, higher short-term US interest rates and bond yields tend to increase the opportunity cost of holding non-yield bullion.

The US central bank's Federal Open Market Committee is set to release a policy statement at 1800 GMT, followed by Fed Chair Jerome Powell's news conference.

Market expects a decision on raising the benchmark overnight interest rates and details on reducing the Fed's US$8.9 trillion balance sheet. 

"A 50 basis point hike is now priced in by markets ... If the statement has a still more hawkish bias, then gold is likely to come under pressure once again," said OANDA senior analyst Jeffrey Halley.

"If the statement remains mostly unchanged in its guidance, then a short-term recovery to US$1,880 is possible as the US dollar is likely to fall."

The US dollar remained close to 20-year peaks, making greenback-priced gold less attractive for overseas buyers. 

Russian forces pounded targets in eastern Ukraine on Tuesday, even as the European Union prepared to slap oil sanctions on Moscow. 

Bullion is seen as a safe store of value during times of economic and political crises.     

Spot silver dipped 0.1% to US$22.54 per ounce, while platinum was nearly unchanged at US$961.62, and palladium gained 0.2% to US$2,260.28.