Spot gold shed 1pc to $1,404.40 per ounce as of 1:30 p.m. EDT (1730 GMT), dropping nearly $15 after US consumer prices demonstrated a pick-up in underlying inflation, increasing in June by the most in nearly 1-1/2 years.
US gold futures settled 0.4pc lower to $1,406.70 per ounce.
Gold prices had touched a one-week high of $1,426 earlier in the session.
The Federal Reserve last month downgraded its US inflation projection for 2019 to 1.5pc from the 1.8pc projected in March.
However, this may probably not change expectations the US central bank will cut interest rates this month.
"We saw today's inflation data - the markets started to back off today because it challenges the need for additional rate cuts," said Chris Gaffney, president of world markets at TIAA Bank, calling bullion's decline a kneejerk reaction.
Thursday's move "is just an adjustment of the fact that maybe it had gone up a little fast yesterday, but is still holding nicely above $1,400, and it looks like we going to continue holding above $1,400," he added.
Spot gold rose 1.5pc on Wednesday after Fed Chair Jerome Powell's dovish remarks, where he confirmed the US economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war, and said the Fed stood ready to "act as appropriate."
This statement weighed on the dollar. The US currency against major other currencies was largely tepid for a second session.
Policymakers from the US central bank are scheduled to meet on July 30-31, where investors will look for further cues on monetary policy easing.
Gold in June rallied to a six-year peak of $1,438.63 an ounce, largely on the back of expectations of rate cuts by key central banks amid concerns over the global economy.
"A break above $1,438 may lead to further buying orders with $1,500 being the next level traders looking to target," Hussein Sayed, chief market strategist at FXTM, wrote in a research note.
Indicative of investor sentiment, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.8pc on Wednesday.
Among other precious metals, palladium erased gains and dipped 1.7pc to $1,561.86 per ounce, having earlier hit a high of $1,605.52.
Silver was down 0.9pc to $15.10, while spot platinum dipped 0.8pc to $818.