Gold erases most of its early gains following the sudden jump in the dollar.

Gold prices witnessed a significant shift during trading on Wednesday, erasing most of their early session gains and stabilizing near the closing levels of the previous session following the sudden surge in the US dollar and the sharp rise in US Treasury yields.

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In trading terms, spot gold prices reduced their gains to a marginal increase of 0.1%, trading at $2,650.98 per ounce, while February futures contracts for the metal declined by 0.1% to settle at $2,663.00 per ounce.

What Drove Gold to Give Up Its Gains Today?

Gold retreated against the strong rise of the dollar and US Treasury yields, which occurred unexpectedly following news reports released by CNN about some of its sources indicating that President-elect Donald Trump is currently considering declaring a state of emergency upon taking office to impose the tariffs he pledged earlier.

This news bolstered the US dollar, which rose to its highest level in a week at 109.37 points following the reports, increasing the cost of acquiring gold priced in US dollars for investors holding currencies other than the dollar, effectively wiping out early gains for the metal.

On the other hand, this also significantly enhanced gains in US Treasury securities, as yields on the benchmark 10-year US Treasury note jumped by approximately 0.75% to record 4.72%, while two-year Treasury yields traded at 4.306% after a smaller increase of 0.26%, resulting in a shift in financial flows for investors towards the bond market at the expense of non-interest-earning gold as the opportunity cost of acquiring bullion rose.

At the same time, data released yesterday showed a greater-than-expected increase in job vacancies in the US, reflecting the continued resilience of the US labor market. Additionally, the Institute for Supply Management's purchasing managers' index for the services sector surged more than anticipated, indicating a stronger rebound in service sector activity, further boosting the dollar and putting additional pressure on gold.

This comes as investors await the release of the ADP's private sector employment data today, ahead of the Federal Open Market Committee's meeting minutes later in the day. This was one of the supportive factors for gold, preventing prices from declining further, especially after data showed that the People's Bank of China continued to bolster its gold reserves, which also provided some support to gold prices.