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Spot gold was down 0.8% at $1,696.76 per ounce by 13:58 p.m. ET, having dropped to its lowest since July 21 earlier in the session.
U.S. gold futures settled 1% lower at $1,709.3.
Gold is considered a safe store of value during times of economic uncertainty, but a higher rate environment tends to take the shine off the asset as it does not pay any interest.
"If the Fed sticks to its inflation mandate and keeps rates elevated and refrains from cutting rates even in a recession, it will not bode well for gold," said Daniel Ghali, commodity strategist at TD Securities.
"If gold breaks below the $1,675 range, we expect substantial selling pressure to emerge."
Mirroring investors' sentiment, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 31,294,673 ounces on Wednesday, the lowest since January. [GOL/ETF]
The dollar index surged to its highest in 20 years, after data showing growth in U.S. manufacturing in August and a dip in Americans filing new claims for unemployment benefits last week gave the Federal Reserve more room to aggressively raise interest rates. [USD/][US/]
A higher dollar makes bullion more expensive for overseas buyers. U.S. Treasury yields also advanced, increasing the opportunity cost of holding non-yielding bullion.
Spot silver fell 1% to $17.99, after hitting its lowest level in more than two years.
Platinum dipped 2.4% to $825.61 per ounce while palladium fell 3.5% to $2,011.48.
"As we are staring down the barrel of recession, industrial metal prices are particularly vulnerable," Ghali added.
Asia's factory activity slumped in August as lockdowns in China and cost pressures continued to hurt businesses, surveys showed.
(Reporting by Ashitha Shivaprasad, Seher Dareen and Rahul Paswan in Bengaluru; Editing by Krishna Chandra Eluri and Vinay Dwivedi)
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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First Published: Fri, September 02 2022. 08:51 IST