By Barani Krishnan

Investing.com – Gold was bludgeoned again by the scythe of U.S. yields on Tuesday amid relentless talk that the Federal Reserve will be pressured to raise rates sooner rather than later to arrest galloping inflation.

U.S. gold futures’ most active contract, , settled down $14.50, or 0.8%, at $1,737.50 per ounce on New York’s Comex. The session’s low point was $1,727.60. This is a seven week high.

“Treasury yield curve steepening is driving the dollar higher and dampening demand for bullion,” said Ed Moya, analyst at online trading platform OANDA.

“Rubbing salt in gold’s wound is that it is not attracting any safe-haven flows as risk aversion accelerates with the having its worst outing since May, the Nasdaq its worst performance since March, and as the Dow turns negative for the quarter.”

The yield on the U.S. 10-year Treasury note was at 1.532% by 2:50 PM ET (18:50 GMT), rising 2% in just under a week from a reset of inflation expectations.

Pegged against six major currencies including the euro, the climbed 0.4% to 93.75.

“If global bond yields continue to rise, gold seems vulnerable to a test of the $1,700 level,” Moya added.

At his news conference after the Fed’s September policy meeting last week, Chairman Jerome Powell suggested mid-2022 as an appropriate target for concluding the central bank’s monthly bond-buying of $120 billion. The Fed’s so-called dot-plot plan also called for interest rates, suppressed at near-zero since the Covid-19 outbreak, to be raised any time next year onwards, he said.

Fed officials had mixed messages about when the taper would take place and how to proceed with the rate hike. Powell has admitted that inflation was trending above the Fed’s 2% per annum target but said that was transitory and will abate over time. While he stated that again before a Senate Banking Committee on Tuesday, Powell acknowledged that inflation was trending above the Fed’s 2% per annum target but that this is temporary and will abate over time. He also admitted that supply chain issues caused by Covid-19 need to be solved before inflation can been controlled.

The question of when the Fed ought to taper its stimulus and raise interest rates has been hotly debated in recent months as economic recovery conflicts with a resurgence of the coronavirus’ Delta variant.

The Fed’s stimulus program and other monetary accommodation have been blamed for aggravating price pressures in the United States. Since the Covid-19 epidemic, the central bank has invested an estimated $2.2 trillion to support the U.S. economic recovery through its stimulus program.

Besides the central bank’s spending, federal government aid for the pandemic, which began under the Trump administration, has reached at least $4.5 trillion to date. And the Biden administration is asking Congress to approve almost $4 trillion more for its so-called “Build Back Better” plan

After declining 3.5% in 2020 from business shutdowns owing to Covid-19, the U.S. economy expanded robustly this year, expanding 6.5% in the second quarter, in line with the Fed’s forecast.

The Fed’s problem, however, is overwhelming inflation and an underperforming job market.

The Fed’s preferred gauge for inflation – the core Personal Consumption Expenditures Index, which excludes volatile food and energy prices – rose 3.6% in the year through July, its most since 1991. Year-on-year, the PCE Index which includes food and energy rose by 4.2%.

The Fed’s own target for inflation is 2% per annum.