Gold Sinks Amid Rising Yields and Rate Hike Fears

Gold prices are on track for a weekly decline due to rising US Treasury yields and expectations of further Federal Reserve rate increases. The spot gold price rose 0.3% to $4,291.06 an ounce by 0844 GMT, but remains about 2% lower for the week.

Rising yields increase the opportunity cost of holding gold because investors can earn higher returns from government securities while retaining exposure to a relatively low-risk asset.

Nitesh Shah, commodity strategist at WisdomTree, said ongoing inflationary pressures are driving rate hike fears higher, which will likely persist until there's a resolution to issues around the Strait of Hormuz and the wider Middle East region.

The current environment illustrates why inflation alone does not determine gold's direction. If inflation rises while central banks respond aggressively with higher rates, the resulting increase in real and nominal yields can weigh on bullion.