Updated from 2:39 p.m. EDT

Gold and other metals weakened Thursday, as the dollar rose overnight and market players remained cautious ahead of the

Federal Reserve's

rate-setting meeting next week.

Gold for August delivery finished down $5.60, or 1%, to close at $585.40 an ounce. Among other metals, silver for July delivery dropped 21 cents, or 2%, to $10.21 an ounce and copper fell 6.1 cents, or 2%, to $3.04 a pound.

Ongoing nervousness over North Korea's intentions to launch a nuclear test missile failed to incite safe-haven bids for gold. Instead, it pressured the yen and helped boost the dollar overnight.

Gold, which acts both as a safe-haven asset and a hedge against inflation, also failed to receive a bid as crude oil advanced 67 cents to $71 a barrel. Oil was higher as tensions with Iran, the world's fourth largest producer of crude oil, continued to dominate trading.

Gold and metals reversed early losses to close higher on Wednesday, and had shown some improvement in recent sessions, spurring hope that the market may recover from a hefty correction endured since mid-May.

For Chintan Karnani, metals analyst with New Delhi, India-based Insignia Consultants, rising geopolitical tensions could again spur safe-haven buying for gold and precious metals. "The Iranian and Korean tensions cannot be buried for long in the mindset of investors," he writes.

Yet, the major negative for gold remains the dollar. The Dollar Index, which tracks the greenback against a basket of key currencies, was recently up 0.7%.

A stronger greenback pressures the price of dollar-denominated commodities such as gold, as it takes less of the currency to buy the same amount of gold.

The dollar, which had been on a downtrend since late last year, started to strengthen last month on expectations that the Fed will continue to hike interest rates for longer than the market expected.

Thursday's news that U.S. jobless claims rose in line with expectations in the latest week kept intact a picture of steady employment growth and supported the dollar. News that the Conference Board's Index of Leading Economic Indicators declined in May was already priced in, according to Tony Crescenzi, interest rate strategist at Miller Tabak and a

RealMoney

contributor

While markets are bracing themselves for another rate hike by the Fed next week, dollar trading remains influenced by economic numbers that might provide hints about future Fed moves.

And although the market is pricing in 100% chance of a quarter-point hike next Thursday, it's also pricing a 10% chance of 50-point hike, according to Miller Tabak.

Jobless claims have been trending lower over the past three weeks, and the next report in a week will coincide with the Fed's decision on rates and its comments about the outlook for monetary policy.

"A fourth low reading could influence the decision to tilt toward a more hawkish policy statement," writes Crescenzi. It "would also lead some to speculate that the Fed might deliver a 50-basis-point hike at the meeting," he adds.

Friday will see a report on U.S. durable goods orders for May, which could reinforce those expectations. Orders for big-ticket items are expected to have increased 0.4% in May, after dropping 4.4% in April.

The hefty correction in commodities seen over the past month came amid concerns that central banks are all lifting rates to curb growth and inflationary pressures, notably from soaring commodities prices.

The European Central Bank, the Bank of Japan and a number of other central banks have all taken steps to tighten monetary policy in recent weeks, leading to concerns that global growth will slow and reduce demand for commodities.

Steel stocks were particularly hit on concerns over a slowing world economy and possible softness in demand next year.

Shares of

Mittal Steel

(MT) - Get Report

, the world's largest steel company, were slammed down almost 5%, and other stocks in the group followed suit.

Nucor

(NUE) - Get Report

slipped 2%, and

U.S. Steel

(X) - Get Report

edged down 0.5%.

Commercial Metals

(CMC) - Get Report

benefited from the glow of record results posted earlier in the week which lifted shares a little over 1%.

Shares of metals miners were also lower. The Philadelphia Gold and Silver index was recently down 1%, the Amex Gold Bugs index was down 0.7% and the CBOE Gold index was down 1.1%.

Among the biggest gainers,

Gold Fields

(GFI) - Get Report

was rising 4% and

Harmony Gold

(HMY) - Get Report

was up 2%.

Among the biggest decliners,

Meridian Gold

( MDG) was losing 3.6% and

Kinross Gold

(KGC) - Get Report

was down 2.8%.

Amid the bearish tone,

Inco

(N)

shares ended little changed even after the mining group lifted its second-quarter earnings estimates based on high mine production, good pricing and lower costs. Nickel futures gained 5%.

The recently launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was up 1%.

ETFs tracking the metals themselves were also mixed. The

iShares Silver Trust

(SLV) - Get Report

was down 2.1%, and the

StreetTRACKS Gold Trust

(GLD) - Get Report

was down 0.9%.

Simon Constable contributed to this report.