Spot gold fell 0.4% to $1,803.41 per ounce by 12:27 p.m. EDT, having hit a low since July 12 of $1,793.59. U.S. gold futures dropped 0.4% to $1,804.60.

Surging Delta variant COVID-19 infections, which raised fears over a stalling global economic recovery, had weighed on risk sentiment and sparked an equities sell-off on Monday, but stocks and bond yields have since recovered, dimming safe-haven bullion's appeal.

"There's a sigh of relief in equities and Treasuries and oil are back up again. These are signs of the reflation trade, which is not good for gold," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

But Streible said a reflationary environment with higher economic growth and rising inflation were positive for silver, platinum and palladium which also have industrial applications.

Higher yields weigh on non-yielding gold, as it raises its opportunity cost.

"We're back in this push-pull market condition with some factors affecting the gold market positively and others negatively," said David Meger, director of metals trading at High Ridge Futures.

The possibility of the Fed's transitory inflation view being proved correct, especially given rising COVID-19 cases, is a negative for an inflation-hedge like gold, but accommodative monetary policy in that scenario would support gold, Meger noted.

U.S. Federal Reserve officials will meet next week, while the European Central Bank meeting is on Thursday.

Gold losses also came despite a pullback in the U.S. dollar from its highest level since the start of the year.

In other precious metals, silver rose 1.1% to $25.18 per ounce, palladium was up 1.3% at $2,667.23 and platinum gained 1.1% to $1,077.78.

(Reporting by Nakul Iyer in Bengaluru; editing by David Evans and Richard Chang)

By Nakul Iyer