Gold prices fell on Thursday, erasing gains made early in the day after stronger-than-expected consumer inflation in the United States cast doubts whether the U.S. central bank will cut interest rates as aggressively as expected.
Spot gold dipped 0.85% to $1,406.8 per ounce, dropping nearly $6 after U.S. consumer prices demonstrated a pick-up in underlying inflation, increasing in June by the most in nearly 1-1/2 years.
U.S. gold futures for August delivery were up 0.26% to $1,408.8 per ounce.
Gold prices had touched a one-week high of $1,426 earlier in the session.
The U.S. Federal Reserve last month downgraded its inflation projection for 2019 to 1.5% from the 1.8% projected in March. However, this may probably not change expectations the bank will cut interest rates this month.
"We saw todays inflation data - the markets started to back off today because it challenges the need for additional rate cuts," said Chris Gaffney, president of world markets at TIAA Bank, calling bullion's decline a knee-jerk reaction.
"(Thursday's move) is just an adjustment of the fact that maybe it had gone up a little fast yesterday, but is still holding nicely above $1,400, and it looks like we going to continue holding above $1,400."
Spot gold rose 1.5% on Wednesday after Fed Chair Jerome Powell's dovish remarks, where he confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war, and said the Fed stood ready to "act as appropriate."
This statement weighed on the dollar. The U.S. currency against major other currencies extended declines for a second session.
Policymakers from the U.S. central bank are scheduled to meet on July 30-31, where investors will look for further cues on monetary policy easing.
Gold rallied to a six-year peak of $1,438.63 an ounce last month, largely on the back of expectations of rate cuts by key central banks amid concerns over the global economy.
"A break above $1,438 may lead to further buying orders with $1,500 being the next level traders looking to target," Hussein Sayed, chief market strategist at FXTM, wrote in a note.
Indicative of investor sentiment, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.8% on Wednesday.
Amongst other precious metals, palladium erased gains and dipped 1.4% to $1,567.01 per ounce, having earlier hit a high of $1,605.52.
Silver was down 0.1% to $15.22, while spot platinum gained 0.3% to $827.25 per ounce.