Gold fell for the third straight session early on Monday, reaching a 5-1/2-month low as the dollar and Treasury yields strengthened on expectations that President-elect Donald Trump will boost US spending. The market pared losses as the greenback and yields came off their sharp highs.
"Uncertainty about the US economic outlook and also about international risk events such as the Austrian presidential election and the Italian constitutional referendum next month could have an impact on wider markets and impact gold's trading in the medium term," said ActivTrades chief analyst Carlo Alberto de Casa. Spot gold hit its lowest since June 3 at $1,211.08 an ounce and was down 0.6 percent at $1,218.92 an ounce by 2:32 pm EST (1932 GMT). It was on track for its biggest three-day drop since July 2015.
US gold futures settled down 0.2 percent at $1,221.70. The dollar rose for the sixth straight session, reaching an 11-month high against a basket of major currencies, while US 10-year Treasury yields soared to their highest since December 2015 at 2.3 percent.
"Our FX strategists believe the US dollar is set to break new highs after consolidating through much of 2016, driven by the president-elect favouring infrastructure spending and tax cuts, as well as the increased likelihood of higher rates in 2017-18," said Standard Chartered in a note.
The market is now betting on the Federal Reserve raising interest rates more quickly. Higher US interest rates could lift the opportunity cost of holding non-interest-bearing gold, pressuring the price of bullion. Saying the coming year under a new US president will be one of "changes" for economic policy, Dallas Federal Reserve Bank President Robert Kaplan on Monday called for "intelligent" fiscal policy to boost growth over the long term.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell on Friday. Among precious metals, palladium has been the outlier, having risen 7.7 percent last week. On Monday, it was up 3.1 percent at $692.90 an ounce. Silver fell 3.3 percent to its lowest since June at $16.61 an ounce, tracking gold's downside. Platinum was down 1.2 percent at $928.50, after falling to $917.50, the lowest since late-February.
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