Gold retreated on Wednesday from the previous day's eight-week high as data showing the biggest pick-up in consumer prices in 2-1/2 years lifted the dollar and U.S. Treasury yields.
Moves were muted however as the markets awaited a speech by Federal Reserve chair Janet Yellen later in the session, which will be closely watched for clues on U.S. monetary policy.
Spot gold was down 0.45 percent at $1,211.00 an ounce, while U.S. gold futures for February delivery were 0.2 percent lower at $1,210.5.
Gold hit its highest since mid-November on Tuesday, having fallen in the immediate wake of Donald Trump's U.S. election victory that month as his pledge to cut taxes and boost spending fuelled a rally in Treasury yields and buying of cyclical assets at gold's expense.
Such a policy would likely prove inflationary, prompting more U.S. rate hikes. The Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent last month and 2.1 percent in the 12 months through December, the biggest year-on-year gain since June 2014.
"We expect a lot more aggressive rate hikes from the Fed in response to already rising inflationary pressures," Capital
Economics analyst Simona Gambarini said. "Possibly there will be even stronger inflation due to Trump's policies -- it very much depends on what gets implemented at a fiscal level."
Higher rates would weigh on gold, she said. The metal is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion.
Uncertainty over Trump's policies ahead of his swearing-in on Friday is keeping the metal underpinned, however.
"At the moment, the market is driven by uncertainty," Gambarini said. "We've seen a rally on the back of the upcoming inauguration date for Trump. People are getting increasingly concerned about what will be implemented."
His protectionist statements and a lack of detail on policy have led some investors to opt for gold, often seen as a hedge against uncertainty in the wider markets, since its post-election slide.
Chinese President Xi Jinping offered a vigorous defence of globalisation on Tuesday, pushing back against the "America First" rhetoric of Trump.
"The extent to which globalisation retreats, and the mood and sentiment coming out of Davos, may impact gold," HSBC said in a note.
Sil was up 0.5 percent to $17.24 an ounce, while was 1.17 percent lower at $971.60 an ounce and was down 0.04 percent at $747.20.