Gold prices declined during trading on Thursday, affected by rising US Treasury yields, while markets continued to assess Federal Reserve Chairman Kevin Warsh's comments on combating inflation, following the US central bank's decision to keep interest rates unchanged during its meeting this week.
Spot gold fell 0.4% to $4,048.39 an ounce, after having gained as much as 2% during Wednesday's session.
In contrast, U.S. gold futures for August delivery rose 0.3% to $4,045.70 an ounce.
These moves came amid continued anticipation of the course of US monetary policy, which remains the most influential factor in the performance of the yellow metal.
Rising bond yields reduce the appeal of gold.
The yields on benchmark 10-year US Treasury bonds have risen, increasing the opportunity cost of holding gold, which does not generate a return for its holders.
ANZ Bank analyst Soni Kumari said that bond yields are directly linked to interest rate expectations, explaining that if markets believe inflation risks will lead to higher interest rates, yields will rise in turn, which puts pressure on gold prices.
She added that investors are repricing their expectations regarding monetary policy based on economic data and statements from Federal Reserve officials, which is quickly reflected in the movements of the precious metal.
Gold is commonly seen as a hedge against inflation, but it loses some of its appeal in an environment of high interest rates, since it does not provide a periodic return like bonds or deposits.
