Updated from 1:22 p.m. EDT
Even with a weakening dollar and higher oil prices lending support, gold wasn't able to hold its early gains, and it finished lower on Wednesday.
Other metals rebounded after suffering their worst single-session declines in more than a decade on Tuesday. Gold for August delivery dropped 30 cents, or 0.05%, to close at $566.50 an ounce, after rising to $575.50 in morning trading. Silver for July delivery rose 11 cents, or 1.14%, to $9.73 an ounce, and the July copper contract gained 4.55 cents, or 1.51%, to $3.05 a pound.
"The gold market saw a bit of technical capitulation during the action Tuesday, and that might make the market less vulnerable to sharp downside extensions," Nell Sloane, a metals analyst at NSFutures.com, wrote in a research note.
Both gold and copper lost roughly 7% and silver plunged 13% during the prior trading day as concerns that rising interest rates might hurt U.S. and global growth, and therefore the demand for commodities, continued to plague the world's markets.
"The factors driving gold lower yesterday were numerous, with fear of slowing and declining inflationary expectations at the top of the list," Sloane says.
has sent fairly clear signals that it intends to fight inflation, stemming notably from the soaring price of energy and commodities, by hiking rates again at the end of June.
On Wednesday, news that U.S. consumer prices, excluding food and energy, rose a more-than-expected 0.3% in May only served to reinforce predictions of another rate increase. The market is now pricing in 100% odds of a June rate hike and a 50% chance of another tightening in August.
The fed funds target rate has been raised at 16 straight Fed meetings and now stands at 5%.
The core CPI was mostly boosted by owners' equivalent rents, which have risen because of a slowing housing market, the economics research team at Goldman Sachs says.
Expectations that U.S. economic growth is slowing led new Fed Chairman Ben Bernanke to signal in April that a pause in rate hikes might be in the cards for June. However, a stronger-than-expected reading on consumer prices for that month followed, and Bernanke reversed course and signaled his intent to control inflation.
"Bernanke has been hawkish for the sole reason that
the May CPI could have been very strong," writes Randy Diamond, equity research sales trader at Miller Tabak. "The Fed really wants to be done and is forced to raise one more time just to re-establish their credibility."
The broad market seemed to be embracing that notion on Wednesday, as stocks on Wall Street advanced, while the safe-haven trades of recent sessions -- such as Treasuries and the dollar -- fell back.
The Dollar Index was down 0.4%. The measure, which tracks the greenback against a group of key currencies, had rallied for the past seven sessions on the prospect of more rate hikes by the Fed.
A weaker U.S. currency boosts the value of dollar-denominated commodities like gold, because it takes more of the currency to buy the same amount of gold. At the same time, fear that rising rates might derail global growth have become priced into markets, perhaps overly so, according to NSF's Sloane. "Overall, the world economy is moving forward, and it might be an error to assume that a slow gradual rise in interest rates is going to derail growth," she wrote in her report.
"In fact, over the last three weeks China has posted stellar retail sales figures, Canada managed an impressive downtick in unemployment, and India nearly posted a double-digit growth in its GDP," Sloane continued.
Elsewhere, word that oil imports in China, the world's largest consumer of crude after the U.S., jumped 19% in May while Chinese industrial production surged 17.9%, helped boost the price of a barrel. Crude oil rose 58 cents to $69.14 a barrel.
Gold, which acts as a hedge against inflation, has tended to benefit as oil prices have soared. But until concerns about rising interest rates abate, "commodities will continue to be a very rough ride for a while yet," Bart Melek, a senior economist at BMO Nesbitt Burns, wrote in a research report.
"It seems that profit-taking on the back of a broad-based decline in global liquidity and a higher U.S. dollar are the most important factors here, as less cheap money is available for speculative buys," he continue. "Simply speaking, investors have done well in gold and other metals, and they want to lock in profits while they still can."
Shares of metals miners also bounced back after sliding on Tuesday. But the main indices tracking the sector were off earlier highs in recent action. The Philadelphia Gold and Silver index was up 0.9%, after earlier rising 3.8%. The Amex Gold Bugs index was rising 0.9%, and the CBOE Gold index advanced 1.5%.
Among the biggest gainers,
was up 3%, while both
were ahead by 2.8%.
Market Vectors-Gold Miners
exchange-traded fund, a tracker for the performance of the Amex Gold Miners index, was up 1.7%.
ETFs that follow the metals themselves were mixed. The
iShares Silver Trust
was up 0.4%, but the
StreetTracks Gold Trust
fell 0.6%, tracking the early afternoon drop in the metal.