Spot gold had eased 0.5% to $4,393.11 per ounce, while U.S. gold futures for December delivery dropped 0.6% to $4,448.
“The steepening of the yield curve poses a headwind for gold, while firmer oil prices are also a factor behind today’s weakness,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.
“Despite the current pullback, we remain bullish on gold and see further upside potential, though the market may need to work through a period of consolidation before renewed buying interest emerges,” Grant said.
Long-term borrowing costs from the U.S. to Japan and Germany hit their highest levels in decades, weighing on non-yielding gold, while crude prices remained in positive territory for a third straight session.
Prospects for a U.S.-Iran peace deal remained stalled after President Donald Trump said Tehran was unlikely to accept terms needed to end the conflict, while Iran vowed a “fully offensive” military posture and said the Strait of Hormuz would remain closed until Washington meets conditions of an interim agreement.
Higher energy prices reinforce the case for higher rates to curb inflation, despite recent U.S. economic data showing unexpected job losses, cooler-than-expected inflation and weak retail sales for July. Investors will now look to the release on Wednesday of the minutes of the Federal Reserve’s most recent policy meeting for guidance on the interest rate path.
“Current investor buying is more consistent with a price closer to $4,000/oz than $5,000/oz, which is associated with investment demand growth of 21% YoY (year over year),” Bank of America analysts said in a note.
“Hence, investor purchases likely need to accelerate for gold to push towards $5,000/oz.”