Gold fell on Thursday as investors booked profits after prices climbed to a more than two-month peak on a surprise U.S. Treasury liquidity-support announcement for long-duration bonds, which weakened the dollar and lowered Treasury yields.
Spot gold was down 0.7% to $4,488.19 per ounce by 0750 GMT. Earlier, bullion was at $4,525.79, its highest since June 2, after a more than 4% advance on Wednesday.
U.S. gold futures were little changed at $4,546.30. The U.S. Treasury Department said it would double the size of liquidity support buyback operations for longer-dated notes and bonds. That came after a major bond selloff as investors demanded higher returns on the back of increased inflationary risks stemming from the U.S.-Israeli war on Iran.
The U.S. dollar was hovering near three-month lows.
"There was obviously a huge rally (in gold), and there's going to be a degree of digestion in markets after a big move like that," said Ilya Spivak, head of global macro at Tastylive.
"The $4,400 to $4,500 price range has been cleared. If prices hold above this range, the upward momentum is likely to continue." Meanwhile, total U.S. debt outstanding topped $40 trillion for the first time, drawing fresh warnings of fiscal crisis.
"Increasing concern about the financial stability of the market with borrowing and debt and the inability to cut spending on the fiscal side is very bullish for gold," said Edward Meir, Marex analyst. Concerns over inflation deepened at the Federal Reserve's meeting last month, with "several" policymakers ready to raise interest rates, minutes of the session showed on Wednesday.
Traders are currently pricing in a 69% chance of a Fed hold and a 31% chance of a rate hike in September, according to the CME FedWatch Tool.
While gold is typically seen as a hedge against inflation, higher interest rates tend to diminish non-yielding bullion's appeal.
Among other metals, spot silver fell 0.5% to $66.60 per ounce, platinum dropped 1.6% to $1,794.91, and palladium slid 0.5% to $1,325.94. - Reuters
