Gold prices continued to slide for the second consecutive session on Thursday, pressured by a robust U.S. dollar and rising Treasury yields following former President Donald Trump's election victory.
The precious metal, denominated in dollars, faces challenges as the dollar reaches a four-month high, reducing the appeal of gold as a non-yielding asset.
By 3:30 pm AEDT (4:30 am GMT) spot gold was $1.76 or 0.1% lower at US$2,657.31 per ounce, trading 4.6% below record highs of $2,790.17.
Market optimism and the decline of safe-haven flows, driven by certainty around the election outcome, have added downward pressure on gold.
The so-called “Trump trades” are leading investors away from precious metals as sentiment favours riskier assets.
The Federal Reserve’s upcoming policy decision on Thursday (Friday AEDT) is anticipated to include a 25 basis-point rate cut, which could offer some relief for gold by lowering the opportunity cost of holding non-yielding assets.
According to the CME FedWatch Tool, there is a 97.5% chance of a 25 basis-point rate reduction.
Meanwhile, U.S. Treasury yields reached their highest levels since July, with the 10-year and 2-year bond yields at 4.429% and 4.260%, respectively. Higher yields present additional competition for gold, further weighing on prices.
Inflation concerns may provide a counterbalance, as Trump’s proposed economic policies - such as increased tariffs and fiscal spending - could drive inflation higher. This scenario may encourage some investors to view gold as a hedge against long-term inflation risks.
U.S. economic data also reflect ongoing strength, with the ISM Services PMI rising to 56.0 in October, surpassing forecasts, though the S&P Global Services PMI posted a slight decline to 55.0.