Gold drops over 1% as Treasury yields rise; investors eye US jobs data

Sept. 1 (Reuters) - Gold fell over 1% on Tuesday, pressured by elevated U.S. Treasury yields, while markets awaited key U.S. labour market data for fresh signals on the Federal Reserve's monetary policy outlook.

Spot gold XAU= was down 1.2% to $4,393.89 per ounce by 0823 GMT, its lowest level since August 19. U.S. gold futures GCcv1 fell 0.9% to $4,443.10.

U.S. Treasury yields rose to their highest since January 2025 on Tuesday as rising tensions in the Middle East stoked inflation worries, and triggered a global bond selloff. US/

"Bond yields around the world continue to rise following Kevin Warsh’s hawkish speech last Friday, thereby adding some downward pressure on gold prices," Saxo Bank analyst Ole Hansen said.

Yields on the benchmark 10-year U.S. Treasury note US10YT extended gains, raising the opportunity cost of holding non-yielding bullion.

Gold hit a more than three-month high last week before falling over 3% on Friday, after Fed Chair Kevin Warsh said at the Jackson Hole symposium that the U.S. central bank would "have work to do" if policymakers were not confident inflation was returning to its 2% target.

Meanwhile, U.S. President Donald Trump on Monday told reporters in the Oval Office that Warsh will "do what he has to do" on interest rates.

Traders are currently pricing in a 66% chance of an interest rate hike later this month, the CME FedWatch Tool showed.

Investors now turn their focus to the ADP employment report due on Wednesday and the nonfarm payrolls data on Friday for further economic policy clues.

While gold is typically seen as an inflation hedge, higher interest rates tend to diminish non-yielding bullion's appeal to investors.