OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG
OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG

Bengaluru — Gold prices recovered slightly due to short-covering on Wednesday, after Tuesday’s slide to the lowest level this year, thanks to surging US bond yields and a stronger dollar.

Spot gold rose 0.3% to $1,293.89 an ounce at 3.30am GMT, after shedding 1.7% and marking the lowest this year at $1,288.31 in the previous session.

This was also the lowest price level for the yellow metal since December 28.

US gold futures for June delivery were up 0.2% at $1,293.30 an ounce.

"Rising US bond yields and a stronger dollar were factors behind gold’s decline below the $1,300 level. The slight pick up suggests that there might have been some opportunistic buying on the part of investors," said John Sharma, an economist with National Australia Bank.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies, while rising US yields tend to weigh on bullion’s non-yielding appeal.

The dollar on Wednesday hovered near a five-month high against a group of major currencies, boosted by a surge in the benchmark 10-year Treasury yield after strong US retail data on Tuesday.

Meanwhile, Asian shares were under pressure after North Korea cancelled high-level talks with Seoul, denouncing military exercises between South Korea and the US and throwing into question next month’s unprecedented summit between Kim Jong-un and US President Donald Trump.

While global political tension continued to provide safe-haven support to the metal, investors said the main price drivers would likely remain a stronger dollar and rising US interest rates.

"There are lot of geopolitical risks but people are just used to it. Therefore it has not become a big driver for gold," said Helen Lau, analyst at Argonaut Securities.

Higher interest rates in the US and a rising dollar would continue to add downward pressure on gold, Lau said.

Reuters technical analyst Wang Tao says spot gold could bounce to resistance at $1,302 before falling again.

In other precious metals, silver was up 0.4% at $16.29 an ounce after falling about 1.6% on Tuesday in its biggest one-day percentage decline since April 23.

Platinum rose 0.3% to $895.74 an ounce, while palladium eased 0.1% to $981.50 an ounce after recording the biggest single-day percentage loss in two weeks at 1.3% in the previous session.