Gold Prices Dropped After Hitting 2-Month High as U.S. Treasury Liquidity Move

Gold prices fell on Thursday as investors booked profits after prices hit a more-than-two-month high with driven by a surprise U.S. Treasury liquidity-support announcement that weakened the dollar and pulled Treasury yields lower.

Spot gold slipped 0.6% to $4,495.69 per ounce having earlier touched $4,525.79 its highest since June 2 after surging more than 4% on Wednesday. U.S. gold futures edged up 0.2% to $4,553.30.

The rally followed the Treasury Department's Wednesday announcement that it would double the size of liquidity-support buyback operations for longer-dated notes and bonds. The move came after a major bond selloff as investors demanded higher returns amid rising inflation risks tied to the U.S.-Israeli war on Iran. The dollar hovered near three-month lows.

"There was obviously a huge rally in gold and there's going to be a degree of digestion in markets after a big move like that," said Ilya Spivak head of global macro at Tastylive, adding that gold could extend gains if prices hold above the $4,400–$4,500 range.

Adding to gold's appeal the total U.S. debt topped $40 trillion for the first time, fueling fresh fiscal concerns. "Increasing concern about the financial stability of the market is very bullish for gold" said Marex analyst Edward Meir.

Inflation worries also deepened at the Federal Reserve's last meeting, with several policymakers open to raising interest rates, according to minutes released Wednesday. Traders currently see a 67% chance the Fed holds rates in September versus a 33% chance of a hike.

Among other metals the silver rose 0.2% to $67.07 per ounce, platinum fell 1.3% to $1,802.29 and palladium slipped 0.2% to $1,328.06.