Gold slides over 1% as US yields jump on rate hike bets

Gold prices dropped more than 1% to hit a seven-week low on Tuesday, as the dollar strengthened and US Treasury yields surged on expectations of sooner-than-expected hike in interest rates by the Federal Reserve.

Spot gold was down 0.8% at $1,735.54 per ounce by 10:48 a.m. EDT (1448 GMT), after falling to its lowest since Aug. 11 at $1,726.19 earlier in the session.

US gold futures fell 0.8% to $1,738.40 per ounce.

"The dot plots set by FOMC members signalling an earlier-than-previously-expected rise in Fed's fund rates, and the move higher across the yield curve continue to have a negative impact on gold," said Bart Melek, head of commodity strategies at TD Securities.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

Benchmark US Treasury yields rose back above 1.5% to their highest in more than three months, with markets starting to price in higher future inflation.

Gold prices ease on uptick in US Treasury yields

Some investors view gold as a hedge against higher inflation that could follow stimulus measures, but higher Treasury yields dull some of the appeal of the non-yielding commodity.

Indicative of sentiment, holdings of the SPDR Gold Trust fell 0.3% to 990.32 on Monday.

Meanwhile, Fed Chair Jerome Powell said on Tuesday the US economy is still far from achieving maximum employment, a key component of the central bank's requirements for raising interest rates.

The dollar index rose 0.3%, making gold more expensive for holders of other currencies.

"The USD has been further appreciating over the past few days, which is adding to the pressure on gold prices. Market participants appear to expect earlier rate hikes to be implemented by the Fed," Commerzbank analysts said in a note.

Elsewhere, silver slipped 0.9% to $22.44 per ounce, palladium fell 3% to $1,905.94, while platinum dipped 0.5% to $975.93.