Gold falls to 10-month low on stronger equities, US Treasury yields

NEW YORK/LONDON — Gold fell to its lowest price in 10 months on Monday as global equities strengthened and investors shrugged off fears of political instability in Italy, while US Treasury yields rose in the wake of fresh US economic data.

Italian Prime Minister Matteo Renzi said he would resign after a crushing defeat on Sunday.

Spot gold fell by as much as 1.6% to its lowest since early February at $ 1,157 an ounce, down more than $30 from the session high. It was down 0.5% at $1,171.11 by 2:39 p.m. EST (1939 GMT). US gold futures settled down 0.1% at $1,176.50 per ounce.

The benchmark 10-year US Treasury yield rose, as the Institute for Supply Management said the pace of growth among domestic services industries accelerated more than forecast in November.

As gold pays no interest, the rise in returns from US bonds is seen as negative for the metal.

The yield later pared gains and gold prices came off their lows.

“Gold has done really well up until the last six months because investors weren’t earning on cash above inflation, but now US 10-year yields are higher and real interest rates have become more positive, hence gold looks less attractive because one can earn a return on cash elsewhere,” said ICBC Standard Bank Analyst Tom Kendall.

Higher appetite for risk curbs the appeal of assets viewed as safer, such as gold.

New York Federal Reserve President William Dudley, one of the Fed’s most influential policy makers, said it is too soon after the Nov. 8 US election of Donald Trump to judge whether the Fed’s plan for gradual interest rate hikes needs adjusting. Chicago Fed President Charles Evans said he expects what has been a long period of low interest rates to end.

The Fed is widely expected to raise US interest rates at its Dec. 13-14 meeting.

“There remains a lot of uncertainty at present, however, we maintain that gold prices will trade lower in 2017 versus 2016,” said Citi Research in a 2017 Outlook report.

“In the absence of strong structural trends, we expect gold price pain before gains.”

Spot silver dropped 0.1% at $ 16.68 an ounce. The 50- day moving average has crossed below the 200-day moving average, potentially forming a death cross, a technically bearish formation.

Other precious metals turned higher. Platinum was up 0.8% at $934.30 and palladium rose 0.1% to $742.05. —