Gold prices gave up initial gains to slip on Monday as U.S. Treasury yields edged back up, while investors positioned themselves for an expected 75-basis-point interest rate hike by the Federal Reserve later this week.
The biggest factor influencing gold is the anticipation of the Fed meeting, with U.S. second-quarter GDP numbers on Thursday also likely to be a significant driver, said Daniel Pavilonis, senior market strategist at RJO Futures.
"Usually, ahead of the Fed, you see a sell-off in the metals and that's just normal."
The Fed is expected to lift its benchmark overnight interest rate by another 75 basis points at its July 26-27 meeting rather than by a percentage point to quell stubbornly high inflation as the likelihood of a recession over the next year rises to 40%, a Reuters poll found.
Rising U.S. interest rates reduce the appeal of non-yielding gold, even though it is considered a hedge against inflation.
Gold retreated on Monday despite a pullback in the dollar index, which usually makes bullion more attractive for overseas buyers.
However, unless the Fed hikes rates by 100 basis points, there is a possibility we will see further weakness in the dollar and gains for gold, said Fawad Razaqzada, market analyst at City Index.
In physical markets, top consumer China's net gold imports via Hong Kong jumped almost fivefold in June as banks stepped up purchases and COVID curbs were relaxed.
Spot silver fell 0.9% to $18.43 per ounce. While growing recessionary fears favor fund flows into the dollar rather than gold, silver is struggling due to recent challenges in the electronics sector, ANZ said in a note.