Gold inches down on higher U.S. Treasury yields

By Sethuraman N R

REUTERS - Gold prices edged down on Wednesday as a surge in U.S. treasury yields and an ongoing rally in equities dented the precious metal's safe-haven appeal.

Spot gold was down 0.2 percent at $1,310.16 an ounce by 0708 GMT. It declined 0.6 percent on Tuesday, in its biggest one-day drop in a month.

U.S. gold futures were down 0.2 percent at $1,310.80 an ounce on Wednesday.

Benchmark U.S. Treasury yields hit a 10-month high on Tuesday after the Bank of Japan tweaked its bond-buying programme.

Wall Street's major indexes extend the New Year rally to record levels into a sixth day on Tuesday, but Asian shares slipped on Wednesday on profit-taking.

"We are wary about going long on gold at these levels... The spike in U.S. treasury yields is an obvious negative, as is the fact that the dollar is now quite oversold against a number of currencies," said INTL FCStone analyst Edward Meir.

"We are particularly concerned by the latest CFTC data showing dollar short positions at multi-year highs and so a short-covering rally cannot be ruled out."

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

The dollar index, which tracks the greenback against a basket of six major rival currencies, was steady at 92.487. It touched a more than one-week high at 92.640 on Tuesday.

The U.S. Federal Reserve should keep interest rates low so that wage gains accelerate and inflation rises, Minneapolis Federal Reserve President Neel Kashkari said on Tuesday.

Investors are betting on more U.S. interest rate hikes after last week's payrolls data did nothing to challenge the outlook for monetary policy tightening by the U.S. Federal Reserve.

Higher rates could dent demand for non-interest-paying gold.

Spot gold may be range-bound between $1,305 and $1,313 per ounce, as suggested by a Fibonacci retracement analysis, according to Reuters technical analyst Wang Tao.

"From a technical point of view, the area $1,300 now represents a support. If gold manages to remain above this level, markets could see this as a signal of strength from the buyers," said ActivTrades chief analyst Carlo Alberto de Casa.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.35 percent to 831.91 tonnes on Tuesday from Monday, the biggest drop since Dec. 18, 2017.

Spot palladium fell 0.5 percent to $1,094.28 an ounce on Wednesday, after hitting a life-time high on Tuesday at $1,111.40.

Silver was down 0.1 percent at $16.93 an ounce. Platinum dropped 0.7 percent to $958.60 an ounce.

(Reporting by Nallur Sethuraman in Bengaluru; editing by Richard Pullin and Subhranshu Sahu)