PRECIOUS-Gold slips to 1-1/2-month low as dollar, bond yields surge

BY Reuters | ECONOMIC | 09/28/21 01:32 AM EDT

* Holdings in SPDR Gold Trust fell 0.3% on Monday

* U.S. 10-year Treasury hits over three-month peak

* Dollar hits a peak since Aug. 20 (Recasts, adds comment, updates prices)

By Eileen Soreng

Sept 28 (Reuters) - Gold prices fell to a 1-1/2-month low on Tuesday, as firmer dollar and soaring U.S. Treasury yields dented the metal's safe-haven appeal, amid more signals emerging that the U.S. Federal Reserve could be shifting towards tighter policy.

Spot gold hit its lowest level since Aug. 11 at $1,735.40 per ounce and was down 0.5% at $1,740.97 by 0719 GMT.

U.S. gold futures fell 0.7% to $1,738.90.

The dollar index hit a more than one-month high, while the benchmark U.S. 10-year Treasury yields touched its highest level in over three months, increasing the opportunity cost for holding non-interest-bearing bullion.

"Major central banks have hinted that this easy liquidity cannot stay in the system and they have to start tapering bond purchases since the COVID crisis is moderating across the globe, because of that gold prices are under pressure," said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai.

U.S. central bank officials, on Monday, tied reduction in Fed's monthly bond purchases to continued job growth, with a September employment report now a potential trigger for the central bank's bond "taper."

Investors now eye Congressional testimony from Fed Chair Jerome Powell due later in the day, after he said the central bank would move against unchecked inflation if needed.

"If the Fed speakers are mostly aligned towards a December taper, that would be a headwind for gold as it will likely continue the steady rise in U.S. yields seen over the past few sessions," said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.3% to 990.32 on Monday.

Silver slipped 1.2% to $22.37 per ounce.

Platinum fell 0.5% to $975.65, while palladium was down 0.8% at $1,948.98.

(Reporting by Eileen Soreng in Bengaluru; Editing by Ramakrishnan M., Rashmi Aich and Sherry Jacob-Phillips)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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