Gold sank 14% in the second quarter, capping the worst performance since 2013. After setting a record in January, the metal has been hurt by speculation that the Fed may hike rates this year to tackle sticky inflation, despite the declines seen in energy costs following the interim US-Iran peace deal. Higher borrowing costs are a headwind for non-yielding metals.

The selloff is driven by expectations of higher US interest rates, with markets pricing in multiple Federal Reserve rate hikes this year.

Analysts said a stronger dollar, easing energy prices and higher-for-longer rates are likely to keep pressure on gold.

“Gold traded slightly weaker, declining by around Rs 700 to Rs 1,41,850, while COMEX Gold slipped towards $3,985 amid a firm US dollar. However, weakness in the rupee helped cushion losses in the domestic market, with MCX Gold recovering from intraday lows near Rs 1,40,550 after the rupee depreciated by nearly 0.50%. Market sentiment remains cautious as traders await key US economic data, including ADP Employment Change, Non-Farm Payrolls, and the Unemployment Rate, which will provide further clarity on the Federal Reserve's interest rate outlook. Gold is expected to continue taking cues from rupee-dollar movements, US economic data, and overall global risk sentiment. Technically, the near-term trading range is seen between Rs 1,40,000 and Rs 1,42,500," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

Gold fell for a third consecutive session on Wednesday, as rising U.S. Treasury yields and growing bets that the Federal Reserve will raise interest rates pressured the non-yielding metal.

Spot gold was down 0.8% at $3,974.75 per ounce as of 0849 GMT, after touching its lowest level since last November at $3,942.99 in the previous session. U.S. gold futures for August delivery lost 1.3% to $3,987.70/oz.

The yellow metal on Tuesday recorded its first quarterly loss since January 2024.

A stronger U.S. dollar makes bullion less affordable for overseas buyers.

"The weakness is a bit driven by comments from Fed's Hammack, suggesting a rate hike might be needed and market participants pricing in a bit more rate hikes for this year," said UBS analyst Giovanni Staunovo.

Federal Reserve Bank of Cleveland President Beth Hammack said on Tuesday she may advocate for higher rates if inflation pressures don’t moderate.

Expectations for more hikes are not helping investment demand, and ETF holdings have seen renewed outflows in recent days, said Staunovo, noting that price volatility is expected around economic data releases this week.

According to CME FedWatch tool, traders see a nearly 67% chance of a rate hike by September.