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 Gold prices dropped to their lowest in over a month on Wednesday, weighed down by a stronger dollar as better-than-expected U.S. economic data raised worries the Federal Reserve could hike interest rates further.

Spot gold fell 1% to $1,835.39 per ounce by 2:53 p.m. ET (1953 GMT). U.S. gold futures settled 1.1% lower at $1,845.30.

U.S. retail sales rose 3% in January over the previous month, highlighting economic resilience despite higher borrowing costs.

Higher retail sales were "another indication that if the Fed wants to cool inflation, they're going to have to raise interest rates to choke off some of this demand," said Jim Wyckoff, senior analyst at Kitco Metals.

This comes after data on Tuesday showed the U.S. consumer price index had increased year-on-year by 6.4%. That was down from 6.5% in December, but above the 6.2% estimated by economists.

Following the U.S. data, the dollar index rose to an over one-month high, making gold more expensive for buyers using other currencies. [USD/]

"In case of a re-acceleration of inflation and a return to more rapid interest rate increases, gold and silver would suffer," said Carsten Menke, head of Next Generation Research at Julius Baer.

"In contrast, gold and silver would benefit if the Fed started to reduce interest rates due to strengthening signs of recession."

Also weighing on gold, Fed officials said earlier this week the U.S. central bank will need to keep raising interest rates gradually.

The yellow metal is considered an inflation hedge, yet rising interest rates increase the opportunity cost of holding the non-yielding asset.

Markets are now pricing a peak above 5.2% and traders are becoming less sure that cuts are coming in 2023. Rates currently stand at 4.5% to 4.75%.

Spot silver dropped 1% to $21.63 per ounce, platinum was down 1.8% to $914.34 and palladium fell 2.1% to $1,465.80.