Gold drops while 2-yr T-yield hits 9-year high

• Gold hit a 6-day low of $1324.
• Two-year yield rose 9-year high on rising Fed rate hike bets.

Gold fell to a 6-day low of $1324 and the two-year Treasury yield clocked a 9-year high of 2.052 percent possibly due to rising Fed March rate hike bets.

Last Friday's stronger-than-expected US core CPI number pushed up the probability of a 25 basis point Fed rate hike in March to 70 percent. Meanwhile, the Fed Beige released yesterday reportedly left the doors wide open for a rate hike in March.

Hence, the two-year Treasury yield, which is sensitive to short-term interest rate expectations, rose to 2.052 percent; its highest level since August 2007. The zero-yielding yellow metal is likely feeling the heat of rising short-term yields.

That said, the downside could be capped by the lackluster action in the USD index. Also, as Reuters says, "investors will be watching Congress to see if it can put together a funding bill in time to avoid a US government shutdown" and that could restrict downside in the metal.

Gold Technical Levels

The metal has breached the ascending trend line (drawn from Dec. 12 low and Jan. 10 low). So, support levels at $1307.60 (Jan. 10 low) and $1300 stand exposed. On the higher side, a move above $1330 would shift risk in favor of a re-test of recent high of $1344.