Gold retreats after US Fed-led boost as dollar gains upper hand

Gold prices fell on Thursday, giving up some gains from a more than 1% rise, as a bounce in the dollar offset support for bullion from a relatively less hawkish stance on interest rate hikes from the U.S. Federal Reserve.

Spot gold fell 0.3% to $1,876.13 per ounce by 1:43 p.m. ET (1743 GMT), having earlier hit its highest since April 29. U.S. gold futures settled up 0.4% at $1,875.7.

Dampening appetite for gold among overseas buyers, the dollar index gained 1.3% boosted by safe haven inflows driven by a retreat in Wall Street, while the yield on 10-year Treasury notes rose over 3%. [USD/] [US/]

"The gold market is losing altitude based upon the strong gains in the U.S. dollar index... also, absolutely spiking bond yields," and the market may have realized that the Fed would still need to be aggressive on interest rate hikes to tame inflation, said Kitco senior analyst Jim Wycoff.

But the downside to gold could be limited as it may also gain from a sharp selloff in equities, Wyckoff added.

While gold is considered a hedge against inflation and uncertainties including the Ukraine war, higher U.S. interest rates and bond yields lift the opportunity cost of holding zero-yield bullion. [MKTS/GLOB]

"Bond yields will continue rising because of expectations that monetary policy from the Fed and other major central banks will be tightened further," limiting gold`s gains in the medium term, said Fawad Razaqzada, market analyst at City Index.

The Fed on Wednesday raised its benchmark overnight interest rate by 50 basis points, the biggest jump in 22 years, while Chair Jerome Powell added the bank was not considering 75-basis-point move in the future.

Markets also made note of unemployment benefit claims remaining at a level consistent with tightening labour market conditions. Any signs of a recovering economy reduces demand for the safe-haven metal.

Spot silver fell 2.4% to $22.40 per ounce, platinum was down 0.9% at $982.35, and palladium dipped 3.1% to $2,185.83.