Gold slides to 3-week low as dollar, fears of rate increase dent appeal

Gold prices slipped to a three-week low on Wednesday as the U.S. dollar and Treasury yields rose on bets of more steep interest rate hikes from the Federal Reserve, reducing the non-yielding metal's appeal.

Spot gold was down 0.6% at $1,641.51 per ounce, as of 0845 GMT, after touching its lowest level since Sept. 28 earlier in the day. U.S. gold futures were 0.6% lower at $1,646.20.

The dollar index rose 0.2%, making gold expensive for overseas buyers, while benchmark U.S. 10-year Treasury yields scaled a fresh 14-year peak. [USD/] [US/]

"The headwinds are back with a vengeance and blasting gold like a cold arctic wind - the dollar index is sharply higher this morning, while the 10-year Treasury yield has traded through the important 4% level," said independent analyst Ross Norman.

"Gold bears will be targeting the year's low at $1,620 seen just a month ago," Norman said, noting Asia's appetite to absorb significant amounts of the metal at lower prices. [GOL/AS]

While gold is generally considered a hedge against inflation, the metal comes under pressure in a rising interest rate environment since it pays no interest.

Minneapolis Fed President Neel Kashkari said on Tuesday the U.S. central bank may need to push its benchmark policy rate above 4.75% if underlying inflation does not stop rising.

"Market participants may want to see a clearer end to Fed's rate hikes before restoring some confidence in gold prices," IG market strategist Yeap Jun Rong said, adding that given the upside risks to inflation, monetary tightening seemed far from over.

Meanwhile, a Russian finance ministry official said officials are in talks with the Shanghai Gold Exchange about admission of gold bars produced by two of the local refineries to support Russian gold trade.

Spot silver fell 1.2% to $18.54 per ounce, platinum dropped more than 2% to $888.49, and palladium shed 0.1% to $2,010.38.

(Reporting by Arundhati Sarkar and Eileen Soreng in Bengaluru; Editing by Subhranshu Sahu)