By: Economy Middle East

Gold prices declined on Thursday as investors took profits following a rally to a more-than-two-month high. The gains came after a surprise U.S. Treasury announcement about liquidity support for long-term bonds, which weakened the dollar and drove Treasury yields lower.

As of 5:35 GMT, spot gold fell 0.93 percent to $4,481 an ounce. Earlier in the session, prices reached $4,525.79, their highest level since June 2, after surging more than 4 percent on Wednesday. Meanwhile, U.S. gold futures eased 0.14 percent to $4,538.71.

In the UAE, gold rates edged higher, with 24-carat gold rising AED0.25 to AED541 and 22-carat gold gaining AED0.25 to AED501.

In addition, 21-carat gold rose AED0.5 to AED480.5 and 18-carat gold edged AED0.25 higher to AED411.75.

Meanwhile, 14-carat gold added AED0.25 to AED321.25.

U.S. dollar holds near three-month low

Gold prices eased as the U.S. Treasury Department said on Wednesday that it would double the size of its liquidity-support buyback operations for longer-dated notes and bonds.

The move followed a sharp sell-off in the bond market, as investors sought higher returns amid rising inflation concerns linked to the U.S.-Israeli war on Iran.

The dollar remained near a three-month low, while total U.S. government debt surpassed $40 trillion for the first time, fueling renewed concerns over the country’s fiscal outlook.

Policymakers weigh rate hike as inflation worries grow

Inflation worries also featured prominently in the Federal Reserve’s July meeting, with minutes released Wednesday showing that several policymakers were open to raising interest rates.

Markets are currently pricing in a 67 percent probability that the Fed will leave rates unchanged in September, compared with a 33 percent chance of a rate increase, according to the CME FedWatch Tool.

Although gold is widely viewed as a hedge against inflation, higher interest rates can weigh on demand for the non-yielding asset by increasing the opportunity cost of holding bullion.

Other precious metals

As gold prices eased, the broader precious metals market saw mixed movement on Thursday. Spot silver edged 0.2 percent higher to $67.07 an ounce, while platinum fell 1.3 percent to $1,802.29. Palladium also declined 0.2 percent to $1,328.06.