Spot gold was down 0.3 percent at $1,248.7 an ounce at 1338 GMT, up from an earlier $1,247.41, its lowest since May 24. U.S. gold futures fell 0.4 percent to $1,251.6.
New York Federal Reserve President William Dudley said U.S. inflation is a little low but should rise alongside wages as the labour market improves, allowing the Fed to continue gradually tightening U.S. monetary policy.
The potential for higher rates reinforced the dollar's uptrend, which when it rises makes dollar-denominated commodities more expensive for holders of other currencies, potentially weakening demand.
"The dollar is a large part of what's going on with gold," said ING commodities strategist Warren Patterson. "I do see some support from uncertainty about the UK government and the start of Brexit negotiations."
British Prime Minister Theresa May failing to win a parliamentary election earlier this month has, alongside Brexit negotiations starting on Monday in Brussels, fuelled political uncertainty.
Weighing on gold is a drop in holdings of physically-backed exchange traded funds to 55.231 million ounces from 55.654 million ounces last Wednesday, when the Fed raised rates and pushed the dollar index to two-week highs.
On the technical front, first support is around $1,248 near the 100-day moving average and resistance sits at $1,260, near the 55-day moving average, traders said.
"There's very strong support at the 200-day moving average, just below $1,240," one trader said.
Elsewhere, palladium was down 0.1 percent at $860.3 an ounce. Earlier this month the metal used to make autocatalysts for gasoline-fuelled cars hit a 16-year high at $914.70 an ounce as the market fretted about shortages in the near term.
But analysts say palladium's gains of more than 25 percent so far this year may not be justified given slowing auto sales.
"There are some concerning signals from the two largest gasoline (palladium) auto markets, the U.S. and China," ICBC Standard Bank analysts said in a note.
"The pace of sales growth in both countries has slowed sharply this year. There are several reasons why, namely credit, a maturing business cycle, and reduced incentives."
U.S. passenger car sales fell 9.8 percent in May from a year earlier. In China the drop was 0.1 percent, but expectations are for further falls over coming months.
Silver lost 0.1 percent to $16.56 an ounce and platinum slid 0.5 percent to $919.5 an ounce.
© Thomson Reuters 2017
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