Gold fell for the third straight session 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 U.S. spending. The market pared losses as the greenback and yields came off their sharp highs.
The dollar rose for the sixth straight session, reaching an 11-month high against a basket of major currencies, while U.S. 10-year Treasury yields soared to their highest since December 2015 at 2.3 percent.
"Our FX strategists believe the U.S. dollar is set to break new highs after consolidating through much of 2016, driven by the president-elect favoring infrastructure spending and tax cuts, as well as the increased likelihood of higher rates in 2017-18," said Standard Chartered in a note.
"A stronger U.S. dollar and higher rates do not only present a hurdle (for gold) in the short term, but are also likely to weigh on prices in the forthcoming months."
Holdings of gold by global exchange-traded funds have now fallen by roughly 16 tonnes for two days in a row, points out Commerzbank, citing data tracked by Bloomberg. “As such, holdings in the gold ETFs have now been reduced both since the start of the month and since the start of the quarter,” Commerzbank says. Holdings in SPDR Gold Shares, the world’s largest gold ETF, stood at 934.56 tonnes as of the close of Friday compared to 955.03 two days earlier. Gold ETFs trade like a stock but track the price of the commodity, with metal put into storage to back shares.
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