Gold dips as US bond yield rebound dims appeal

Gold prices fell on Friday as US bond yields rebounded, though a subdued dollar helped put the precious metal on track for its best week since late August.

Spot gold fell 0.7 per cent to $1,783.18 per ounce by 0920 GMT. US gold futures slipped 0.7 per cent to $1,785.80.

Also read: Gold eases as inflation data fans policy tightening bets

Dimming gold's appeal by raising its opportunity cost, US benchmark 10-year Treasury yields recovered from a more than one-week low hit on Thursday.

"Expectations are growing that the Fed and other central banks are going to tighten their monetary policy, which should keep yields supported, and when yields rise gold tends to struggle," said Fawad Razaqzada, analyst with ThinkMarkets.

"Investors are, however, likely expecting only a moderate tightening from major central banks and that shouldn't cause too much of a problem for gold as investors hedge against elevated price levels."

While most Fed policymakers agree the central bank could start reducing its monthly bond purchases as soon as next month, they are sharply divided over inflation and what they should do about it.

Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, raising the opportunity cost of holding non-yielding bullion.

Investors now await US retail sales data due at 1230 GMT.

"While gold could face resistance at the 100 and 200-day moving averages of about $1,797 and $1,794 respectively, gold could overcome this threshold if US economic data – especially retail sales – turn out to be weaker and the dollar depreciates in response," Commerzbank analysts wrote in a note.

Gold remains on course for a 1.4 per cent weekly gain as the dollar index weakened slightly, lowering gold's cost for buyers holding other currencies.

Spot silver fell 1 per cent to $23.30 an ounce but was headed for its biggest weekly gain in seven.

Platinum dropped 0.5 per cent to $1,050.12, while palladium rose 1.2 per cent to $2,154.39.

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