Gold prices inched up as investors sought refuge in the metal after the dollar weakened and global stocks tumbled on the back of rising bond yields.
Spot gold edged 0.2 per cent higher to $US1,191.84 per ounce, while US gold futures settled up $US1.9, or 0.16 per cent, at $US1,193.4.
World equities fell more than one per cent to three-month lows, while the US dollar index retreated from a seven-week peak hit in the previous session.
‘The S&P 500 is looking very weak and negative and that is putting fear into investors,’ said Michael Matousek, head trader at US Global Investors.
‘With the markets going down people are increasing their allocation towards gold.’
Gold, however, has fallen over 13 per cent since hitting a peak in April, with investors increasingly opting for the safety of the greenback as the US-China trade war unfolded against a backdrop of rising US interest rates.
Rising bond yields have also dampened the appeal of gold, which pays no interest.
Higher Treasury yields can translate into more demand for the dollar, making bullion more expensive for holders of other currencies.
‘The higher yield environment and stronger dollar are providing a toxic mix for gold,’ said Fawad Razaqzada, an analyst with Forex.com.
‘The trend for yields has been bullish and they could rise further from here. It will be hard for gold to sustain any rallies in this environment.’
US Treasury yields advanced, holding near multi-year highs after government data showed the US producer price index climbed in September, which reinforced expectations that the Fed would hike interest rates at a faster pace.
‘Gold prices will struggle to rebound over the remainder of 2018,’ said Sabrin Chowdhury, commodities analyst at Fitch Solutions.
‘Strong US economic growth, concurrent monetary policy normalisation by the US Federal Reserve and a strong dollar will all limit the attractiveness of holding gold as an investment.’
The Fed increased interest rates last month for the third time this year and is widely expected to hike again in December, with no suggestion its tightening policy will cease anytime soon.
Analysts said an upside in gold could also be limited by waning demand due to depreciating domestic currencies in major gold-consuming countries such as India.
Spot silver fell 0.4 per cent to $US14.31, earlier touching its lowest since September 28 at $US14.21.
Palladium rose 0.4 per cent at $US1,073.70 and platinum was steady at $US824.30 an ounce.