BENGALURU - Gold prices dropped on Wednesday as benchmark U.S. bond yields poked above the 3 percent level and lifted the dollar to its highest in more than three months.
Spot gold was down half-a-percent at $1,323.59 per ounce, as of 0759 GMT. The yellow metal rose 0.5 percent on Tuesday to break a three-session losing streak.
U.S. gold futures dropped 0.6 percent to $1,325 per ounce.
Higher interest rates tend to boost the dollar and push up bond yields, putting pressure on the greenback-denominated gold.
The dollar index, which measures the greenback against a basket of currencies, rose 0.4 percent to 91.117, its strongest since Jan. 12.
"The strength of the dollar index and rising Treasury yield confirm that the Fed's hawkish stance is not going to change anytime soon," Naeem Aslam, chief market analyst, Think Markets.
"However, I do believe that with sell-off in the equity market, investors would have to put their money (elsewhere). The safe-haven gold would attract that money flow," Aslam said.
Asian shares fell on Wednesday as a rise in U.S. bond yields above 3 percent and warnings from bellwether U.S. companies of higher costs drove fears that a boom in corporate earnings may be near its peak.
"When the equity walls come crumbling down, gold offers the best support," said Stephen Innes, APAC trading head, OANDA.
"As traders put geopolitical and trade risk in the rear-view mirror for the time being, how the dollar flourishes and wilts will be the primary driver of near-term gold sentiment," Innes added.
Gold is often seen as an alternative investment during times of political and financial uncertainty.
Trump said on Tuesday the United States would likely reach a trade agreement with China and that officials from both sides would sit down for negotiations in a few days.
Meanwhile, North Korean leader Kim Jong Un is due to hold a summit with South Korean President Moon Jae-In on Friday, and is expected to meet with U.S. President Donald Trump in late May or early June.
"I think that the downward trend (in gold prices) will continue for the next few days..." ahead of a meeting between leaders of North Korea and the South, said Ji Ming, chief analyst, Shandong Gold Group.
In other precious metals, spot silver dropped 0.6 percent to $16.61 an ounce, and platinum eased 0.4 percent to $922.40 an ounce.
Palladium fell for a third straight session, down 0.7 percent at $967.75 an ounce.