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PRECIOUS-Gold slides to fresh 2-1/2-year low as U.S. dollar, yields climb

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Silver falls to three-week low

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Dollar hits fresh two-decade high

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U.S. 10-year bond yields at highest since 2008

(Updates prices)

By Brijesh Patel

Sept 28 (Reuters) - Gold prices dropped to a fresh 2-1/2-year low on Wednesday, as a rally in the U.S. dollar and Treasury yields on prospects of more aggressive rate hikes by the Federal Reserve diminished its appeal.

Spot gold was down 0.1% at $1,626.79 per ounce, as of 0854 GMT, after falling to its lowest since April 2020 at $1,613.60 earlier in the session.

U.S. gold futures slipped 0.1% to $1,635.10.

"The main factor really is the strength of the dollar, which has been supported by the ongoing Fed narrative that they will do whatever it takes to bring down the inflation," said Ricardo Evangelista, senior analyst at ActivTrades.

"I see gold prices staying subdued for the foreseeable future. We are coming close to a support around the $1,600 level. It would probably stay in a narrow range around just above that level despite the ongoing geopolitical instability."

Rival safe-haven dollar scaled a new two-decade high, hurting demand for greenback-priced gold among buyers holding other currencies, as rising global interest rates fuel recession worries in the financial markets.

Gold has failed to benefit from the recent rout in equities as higher interest rates increase the opportunity cost of holding non-yielding bullion.

Also weighing on gold, benchmark U.S. 10-year Treasury yields rose to their highest level since October 2008.

Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Fed Bank President Neel Kashkari echoed the U.S. central bank's pledge to focus on tackling soaring inflation.

Meanwhile, silver fell 1.2% to $18.21 per ounce after hitting a three-week low of $17.94 earlier in the session.

"While the metal (silver) may continue to drift lower in the short-term, any dip below $18 an ounce is likely to spark buying activity to see it quickly regain that threshold," Kinesis Money analyst Rupert Rowling wrote in a note.

Platinum fell 0.9% to $840.03 after touching its lowest since Sept. 5, while palladium shed 0.7% to $2,073.03. (Reporting by Brijesh Patel in Bengaluru; editing by Jason Neely and Vinay Dwivedi)

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