Gold settled lower on Thursday as U.S. consumer spending data and sliding crude oil prices sent prices below a two-month high earlier this week, and a lack of investment interest could further pressure the precious metal, analysts said.
Bullion fell after U.S. government data showed a modest increase in consumer spending in May, likely held back by weak healthcare spending, which could prompt economists to temper their second-quarter growth estimates.
The precious metal had gained 4 percent since last Thursday and reached a two-month high on Tuesday at $1,325.90 on concerns over escalating violence in Iraq.
U.S. gold futures for August delivery settled $5.60 lower at $1,317.00 an ounce, while spot gold was last down 0.3 percent at $1,315 an ounce.
Chart: Precious Metals
Analysts, however, said that gold's gain was largely driven by short covering as speculators aggressively bought back their bearish bets.
Gold-backed exchange traded funds have also failed to attract buyers despite bullion's rally.
"With strategic buyers opting not to participate in gold's rally, gold upside is certainly questionable," said Edel Tully, precious metals strategist at UBS.
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Gold prices also came under pressure on comments from St. Louis Fed President James Bullard that interest rate increases should come sooner rather than later. Also negative was a drop in crude oil prices as fears over conflict causing export disruption from Iraq eased further.
Physical gold demand in main consumer China remains lackluster, dealers said, with higher prices curbing some buying.
China's total gold imports from Hong Kong dropped 17 percent to 67.233 tons in May from 80.817 tons in April, according to data emailed to Reuters by the Hong Kong Census and Statistics Department.
—By Reuters. For more information on precious metals, please click here.