Bullion is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding the non-yielding metal.
Spot gold was down 0.4% at $1,656.82 per ounce, as of 0845 GMT. U.S. gold futures fell 0.7% to $1,665.60.
"The dollar strength persists... the higher-than-expected US CPI in August reaffirmed the market view that the Fed will at least hike rates by 75 basis points, which is weighing on gold prices," Bank of China International analyst Xiao Fu said.
"If gold falls below $1,600, there could be some buy on dips demand emerging, but the risks are definitely skewed to the downside."
The dollar climbed 0.3% against its rivals to hover near a recent peak, making gold more expensive for buyers holding other currencies. Benchmark 10-year U.S. Treasury yields rose to their highest in three months. [USD/] [US/]
Recent hawkish remarks from Fed policymakers and an unexpected rise in August U.S. consumer prices cemented bets for a 75-basis-point rate hike by the U.S. central bank at its Sept. 20-21 policy meeting.
"With central banks across the world set on policies that have already seen them hike rates significantly and are likely to continue for a number of months yet, gold's appeal has dwindled significantly," Kinesis Money analyst Rupert Rowling said in a note.
Gold prices have fallen more than $400, or nearly 20%, since scaling above the key $2,000-per-ounce level in March. It was also headed for its biggest weekly percentage fall in two months, down 3.4% so far this week.
Elsewhere, spot silver slipped 1.8% to $18.82 per ounce. Platinum dropped 2.2% to $884.50, while palladium was down 2.5% at $2,082.38.
(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu)
By Brijesh Patel
