Spot gold fell 0.5% to $4,143.91 per ounce. U.S. gold futures for December delivery were down 0.4% at $4,163.30 per ounce.
The US dollar edged up, making greenback-denominated gold more expensive for holders of other currencies, and 10-year US Treasury yields rose 0.6%.
“There are concerns that central banks will have to tighten their policies further to control inflation, which is providing yields another boost. And with yields remaining elevated, gold investors are wondering whether it makes more sense to be in the bond market right now” said Fawad Razaqzada, market analyst at Forex.com.
The Fed raised interest rates by a quarter point in September, its first hike this year.
“It is not just about whether the Fed hikes next week or waits until December; the tone of its guidance will matter. A hawkish message could bring further short-term weakness for gold,” Razaqzada added.
According to the CME’s FedWatch Tool, traders see an 82.8% chance that the Fed will leave rates unchanged this month, while expectations for a hike in December remain at 90%.
While gold is typically considered a hedge against inflation, higher interest rates reduce the appeal of the non-yielding asset.
Investors are also awaiting U.S. Personal Consumption Expenditures data next week, the central bank’s preferred gauge of inflation.
Meanwhile, oil prices slipped from a five-month high after US President Donald Trump waived sanctions and tariffs on Russia that may lead to more Russian fuel exports.
The drop in oil prices eased some inflation concerns after strong U.S. CPI and PPI readings last week.
“In our view, key resistance remains at $4,235, while support continues to emerge below $4,100,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Among other metals, spot silver gained 0.4% to $57.24 per ounce, platinum rose 1% to $1,646 per ounce and palladium climbed 0.8% to $1,121.14 per ounce.