Gold Drops 1.1% to $4,118 as Bond Yields Weigh on Stocks

Gold fell 1.1% to $4,118 per ounce, pressured by rising bond yields that increase the opportunity cost of holding the metal, in a session that saw a clear shift in risk appetite.

The yield on the 10-year U.S. Treasury note rose six basis points to 5.34%, its highest level since 2002, while the 30-year bond yield accelerated to 5.72%. This pushed European stocks down by more than 1% across various exchanges, while S&P 500 futures fell 0.4% and Nasdaq futures dropped 0.7%.

In the energy market, West Texas Intermediate (WTI) crude rose 0.7% to $90.06 per barrel, and Brent crude returned above $102. Traders during the session are following two key events: an auction of 10-year bonds and the minutes of the Federal Reserve's Open Market Committee meeting.

The rise in U.S. yields is directly linked to markets in the Arab region, as Gulf countries peg their currencies to the dollar and borrow at spreads above U.S. yields; furthermore, high funding costs are reflected in local interest rates and borrowing costs for individuals and companies.

What do these terms mean?

Bond Yield: The annual percentage return a bondholder receives relative to its price, which rises when the bond's market price falls.

Basis Points: A small unit of measurement for interest rates or yields; 100 basis points equals 1%.

Opportunity Cost: The alternative return an investor foregoes when choosing a specific asset; rising bond yields make gold less attractive because the metal pays no interest.

Fed Meeting Minutes: A record of discussions by the Federal Open Market Committee at the U.S. central bank, which traders read to gauge upcoming interest rate decisions.