By Kavya Guduru
(Reuters) - Gold prices were largely flat on Thursday as elevated Treasury yields and concerns over the U.S. Federal Reserve's aggressive monetary policy pressured bullion, but a drop in the U.S. dollar supported the precious metal.
Spot gold was little changed at $1,659.09 per ounce by 2:06 p.m. EDT (1806 GMT), having slid over 1% to $1,640.30 earlier.
U.S. gold futures settled 0.1% lower at $1,668.60.
"A slightly weaker dollar today might give some relief (to gold)... (but) the key takeaway should still be what's happening with yields, the short end of the curve is still rising strongly," said Edward Moya, senior analyst with OANDA.
The dollar retreated, making greenback-priced bullion less expensive for overseas buyers, while Treasury yields rose. [USD/] [US/]
Gold prices had declined after data showed U.S. initial claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week.
Investors also took stock of data that U.S. GDP fell at an unrevised 0.6% annualized rate in the second quarter, compared with a much larger contraction of 1.6% in the first quarter.
Several Fed officials have reiterated the U.S. central bank's commitment to raise interest rates aggressively to battle surging inflation.
"Rates markets are pricing the potential for higher interest rates to persist for some time ... gold prices could still have further to fall in the next stage of the hiking cycle," TD Securities said in a note.
Even though gold is seen as a hedge against inflation, rising interest rates dim its appeal as they increase the opportunity cost of holding the non-yielding asset.
"You're probably looking at a gold market that's still going to react to everything about the dollar, everything about Fed expectations," Moya said.
Meanwhile, spot silver shed 1% to $18.71 per ounce.
Platinum fell 0.5% to $859.49, while palladium rose 2.5% to $2,208.83.
(Reporting by Kavya Guduru in Bengaluru; Editing by Shailesh Kuber and Vinay Dwivedi)