Gold falls as bond yields climb to multi-decade highs

Gold prices declined on Tuesday as US Treasury yields climbed to their highest levels in decades, while rising energy prices amid escalating tensions between the United States and Iran fueled inflation concerns.

Spot gold fell 0.5% to $4,393.11 an ounce, while US gold futures for December delivery declined 0.6% to $4,448.

Rising yields and inflation concerns weigh on gold

Long-term borrowing costs from the United States to Japan and Germany climbed to their highest levels in decades, putting pressure on non-yielding gold, while oil prices extended their gains for a third consecutive session.

Prospects for a peace agreement between the United States and Iran remain uncertain after US President Donald Trump said Tehran was unlikely to accept the conditions required to end the conflict. Iran, meanwhile, vowed to adopt a "fully offensive" military posture and said the Strait of Hormuz would remain closed until Washington complies with the terms of a temporary agreement.

Higher energy prices are strengthening the case for interest rate hikes to contain inflation, despite recent US economic data showing an unexpected decline in employment, softer-than-expected inflation and weak retail sales in July.

Investors are now turning their attention to the minutes of the Federal Reserve's latest monetary policy meeting, due on Wednesday, for further clues about the path of interest rates in the coming months.

Gold needs stronger investment demand

Bank of America analysts said in a note that current investor purchases are more consistent with a gold price near $4,000 an ounce rather than $5,000, with the latter level associated with 21% year-on-year growth in investment demand.

The analysts added that investor buying would need to accelerate for gold to move toward the $5,000-an-ounce level.