Gold rose on Wednesday, hitting its highest in nearly four months as the dollar swooned after a report that Chinese officials had recommended slowing or halting purchases of U.S. Treasury securities.
The dollar, already under pressure versus the Japanese yen after the Bank of Japan moved to trim its long-dated government bond purchases this week, was on track to post its biggest single-day drop against the yen in seven weeks. The greenback also lost ground against a basket of major currencies.
Spot gold was up 0.5 percent at $1,318.67 an ounce by 1:41 p.m. EST (1841 GMT). Its session high of $1,326.56 was its highest since Sept. 15. U.S. gold futures for February delivery settled up $5.60, or 0.4 percent, at $1,319.30 per ounce.
U.S. Treasury yields jumped to 10-month highs after Bloomberg News reported that Chinese officials have recommended the country slow or halt its purchases of the U.S. bonds. Rising Treasury yields can pressure prices for gold, but the dollar's slide helped gold shrug off the impact.
The report "added pressure on the U.S. dollar and helped gold," said Bart Melek, head of commodity strategy at TD Securities in Toronto.
"Gold did better, despite the fact that the yields across the curve moved higher," he said. "With bond yields going up so steadily and looking like they’re going higher that could be a bit of a headwind given the fact that gold is a non interest-bearing asset," said Bill O’Neill, partner, co-founder of LOGIC Advisors in Upper Saddle River, New Jersey.
A possible slow-down or halt to China purchasing U.S. Treasury yields could have significant repercussions, ONADA said in a note.
"The tightening effect of such measures would likely have an impact on how many times the Federal Reserve raises interest rates this year, which is why we've seen a corresponding drop in the dollar," OANDA said.
Among other metals, palladium dropped 1.5 percent at $1,083.97 an ounce, after hitting a record high on Tuesday at $1,111.40.
Tightening emissions standards and a switch away from diesel cars to more palladium-heavy gasoline models has shored up demand expectations for the autocatalyst metal.
Platinum was up 0.9 percent at $973.60 an ounce, after hitting a nearly four-month high of $973.90.
Silver was up 0.4 percent at $17.01 an ounce, after earlier drifting to $16.86, its lowest since Dec. 29.
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