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Gold drops as dollar, US yields rise

Gold prices

Spot gold shed 0.4% to $2,069.79 per ounce, after rising as high as $2,088.29 earlier, the most since December 4, when bullion reached its all-time high

Gold prices eased on Thursday, after reaching a more than three-week high earlier, as a rise in the U.S. dollar and Treasury yields undermined the support from expectations of rate cuts by the Fed early next year.

Spot gold shed 0.4% to $2,069.79 per ounce by 1920 GMT, after rising as high as $2,088.29 earlier, the most since December 4, when bullion reached its all-time high.

U.S. gold futures settled 0.5% lower at $2,083.50.

There is not a lot of trading volume right now in any of the markets so that usually causes smaller moves, especially when we are approaching a big number such as an all-time high, said Chris Gaffney, president of world markets at EverBank.

The reason prices have gone back near the horizon and rallied again towards the end of the year is all about interest rate expectations and a softer dollar, he added.

The dollar index gained 0.3% after reaching a five-month low. Benchmark 10-year bond yields also increased, coming off their lowest levels since July.

U.S. jobless claims increased last week, suggesting the labour market continues to cool in the year’s fourth quarter.

Investors are betting on an 88% chance of the Fed cutting rates in March, as per the CME FedWatch tool.

Lower interest rates lower the opportunity cost of holding non-yielding bullion.

We look for higher gold prices over the next 12 months, with weaker economic data and lower inflation in the U.S. forcing the Federal Reserve to cut rates, UBS analyst Giovanni Staunovo said.

On the physical front, China’s net gold imports via Hong Kong increased by nearly 37% in November from the previous month.

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