Checkout Budget Highlights 2023Gold prices dropped to their more than one-month lows on Wednesday, weighed down by a stronger dollar as better-than-expected U.S. economic data raised worries that the Federal Reserve could hike interest rates further.
Spot gold fell 1.14 percent to $1,833.20 per ounce by 10:30 a.m. ET(1530 GMT). US gold futures were down one percent to $1,846.00.
US retail sales rose 3 percent in January over the previous month, highlighting economic resilience despite higher borrowing costs.
Higher retail sales were "another indication that if the Fed wants to cool inflation, they're going to have to raise interest rates to choke off some of this demand," said Jim Wyckoff, senior analyst at Kitco Metals.
This comes after data on Tuesday showed the US consumer price index had increased year-on-year by 6.4 percent. That was down from 6.5 percent in December, but above the 6.2 percent estimated by economists.
Following the U.S. data, the dollar index rose to a more than one-month high, making gold more expensive for buyers using other currencies.
"In case of a re-acceleration of inflation and a return to more rapid interest rate increases, gold and silver would suffer," said Carsten Menke, head of Next Generation Research at Julius Baer.
"In contrast, gold and silver would benefit if the Fed started to reduce interest rates due to strengthening signs of recession."
Also weighing on gold, Fed officials said earlier this week that the U.S. central bank will need to keep raising interest rates gradually.
The yellow metal is considered an inflation hedge, yet rising interest rates increase the opportunity cost of holding the non-yielding asset.
Markets are now pricing a peak above 5.2 percent and traders are becoming less sure that cuts are coming in 2023. Rates currently stand at 4.5 percent to 4.75 percent.
Spot silver dropped 1.2 percent to $21.57 per ounce, platinum was down 1.3 percent to $918.56 while palladium sank on 3.2 percent to $1,449.64.