Gold futuers fell for the third consecutive session on Tuesday, after hawkish remarks from U.S. Federal Reserve Chair Janet Yellen.
Gold for August delivery, the most actively traded contract, dropped $9.60 or 0.7 percent to close at $1,297.10 an ounce on the Comex division of the New York Mercantile Exchange on Tuesday.
Gold prices turned negative after Fed Chairman Janet Yellen told Congress that the Federal Reserve may raise interest rates sooner than earlier forecast if improvements in the U.S. labor market are sustained.
"If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned," Yellen said in prepared remarks to the Senate Committee on Banking, Housing, and Urban Affairs.
An interest rate rise would hurt gold, which pays nothing and struggles to compete with investments that offer yield. Prices for the precious metal are up nearly 6% from their June lows.
The dollar index, which tracks the U.S. unit against six major currencies, traded at 80.38 on Tuesday, up from its previous close of 80.17 late Monday in North American trade. The dollar scaled a high of 80.41 intraday and a low of 80.14.
Gold prices saw their biggest drop since December on Monday, falling more than 2% as investors took profits on the metal's recent rally
Fears that an arm of Espirito Santo International could fail to pay back a loan to Portugal Telecom due Tuesday are sparking fresh worries about Europe's financial system.
The bank delayed repayments on some short-term debt securities last week, leading some analysts to fear that the Portugal Telecom loan repayment will be missed or postponed, too. Some investors use gold as a hedge against financial or political uncertainty, believing it will hold its value while other assets fall.