By Shreyansi Singh
(Reuters) - Gold tumbled more than 2% on Wednesday, hit by a rebound in the dollar as U.S. Treasury yields surged, showing that investors are betting on a Democrat win in the U.S. Senate runoff elections in Georgia.
Spot gold was down 2.2% at $1,907.21 per ounce at 11:52 a.m. EST (1652 GMT), having earlier hit a near two-month peak at $1,959.01. U.S. gold futures dropped 2.3% to $1,909.10.
"Higher (bond) yields have boosted the dollar and triggered a selloff in gold that accelerated with stops under $1,935-40," said Tai Wong, head of base and precious metals derivatives trading at BMO. "$1,900 is an important pivot that needs to hold to maintain the short term bullish narrative."
The 10-year U.S. Treasury yield, rose above 1% for the first time since March, increasing the opportunity cost of holding non-interest bearing gold.
The dollar index firmed after a dive to 2-1/2-year lows, making gold less attractive for those holding other currencies.
But BMO's Wong said this was a buying opportunity. "A Democratic Congress with Biden in the White House is a license to spend and that's not a lower gold environment."
Gold remains underpinned as an inflationary hedge, with investors expecting more fiscal stimulus as the Democrats lead in runoff votes that will determine control of the U.S. Senate.
David Meger, director of metals trading at High Ridge Futures, said the pullback was a short-term move as a potential "Blue Wave" in the U.S. Senate would be dollar negative and "supportive to gold and silver from a longer term perspective."
Meanwhile, minutes of the U.S. Federal Reserve's Dec. 15-16 policy meeting are due at 1900 GMT.
Other metals followed gold's slide. Silver fell 2.6% to $26.86 an ounce, while platinum dipped 1.4% to $1,095.98. Both metals had fallen more than 3% earlier in the session.
Palladium was down 1.2% at $2,438.71, having earlier declined as much as 3%.
(Reporting by Shreyansi Singh and Eileen Soreng; Editing by Steve Orlofsky and Jane Merriman)