Gold fell 1 percent on Thursday, snapping five sessions of gains, as the dollar strengthened on the back of upbeat U.S. data and concerns eased over further losses in the yuan after the devaluation of the currency by China.
Falling equities, dollar strength and speculation that the weaker yuan could delay a U.S. interest rate rise sparked a short-covering rally in gold this week after its recent drop to 5-1/2 year lows, pushing prices to their highest since mid-July.
On Thursday, however, data showed that U.S. retail sales rebounded in July, suggesting the economy was growing solidly early in the third quarter and bolstering the case for a Federal Reserve interest rate hike.
This is negative for gold as it would lift the opportunity cost of holding non-yielding bullion while boosting the dollar.
was down 0.9 percent at $1,114.56 an ounce, while U.S. gold futures for December delivery settled down 0.7 percent at $1,115.60 an ounce. Earlier it hit its highest since mid July at $1,126.30.
"U.S. retail sales should help keep pressure on the gold price, unless there is any further unexpected depreciation of the yuan and more risk-off turmoil," said Mike Dragosits, senior commodity strategist for TD Securities in Toronto.
"Accordingly, we should eventually trend back toward that $1,000/oz level as rate hikes near and inflation remains muted."
Shares revived and bond yields rose in major markets after China's central bank reassured investors there was no reason for its currency to keep falling.
While the devaluation of the yuan appears positive for gold in the longer term, if it stimulates demand for the metal as a haven from currency volatility, Commerzbank analyst Eugen Weinberg said, the metal remains vulnerable to dollar strength.
"Today the dollar is (strengthening), and the set of data from the U.S. was quite good, which again probably increases somewhat the probability of a (near term) rate hike," he said.
The dollar index was up 0.15 percent.
Gold demand hit a six-year low in the second quarter, a World Gold Council report showed.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.6 percent on Wednesday, rising up from the lowest since September 2008.