Spot gold fell 0.5% to $1,855.99 per ounce by 1:55 p.m. EDT (1755 GMT), while U.S. gold futures settled down 0.5% at $1,856.40.
"There's growing nervousness about rising inflation and the feeling in precious metal markets is that central banks have to start to respond a bit more aggressively to these inflationary pressures," ED&F Man Capital Markets analyst Edward Meir said.
Meir said while gold could face a "short-lived" setback if the Fed begins tapering by end-2021 or even hints at it on Wednesday, bullion will likely be bought "on the dips" on concerns over rising inflation.
The Fed has repeatedly said that current price spikes are transitory, but its two-day meeting ending on Wednesday could feature initial discussions among policymakers about when and how fast to pare back its massive bond-buying program to address inflation. [
Further reducing gold's appeal, the dollar index firmed after hitting a one-month peak and benchmark yields rose, increasing non-yielding gold's opportunity cost.
On the physical front, consultants Metals Focus said decreased buying of bullion by exchange traded funds could limit gold demand this year.
Meanwhile, data showed U.S. retail sales fell more than expected in May, while producer prices rose more than expected.
The data also showed a drop in receipts at auto dealerships.
While lower automobile output due to the global semi-conductor shortage should weigh on platinum and palladium's auto-catalyst demand, concerns over inflation should support the metals, said Bob Haberkorn, senior market strategist at RJO Futures.
Elsewhere, silver shed 0.8% to $27.62 per ounce, platinum fell 1.4%, to $1,148.37 and palladium rose 0.2% to $2,757.65.
(Reporting by Nakul Iyer in Bengaluru; Editing by Steve Orlofsky and Jane Merriman)
By Nakul Iyer
