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Gold prices dropped to a three-week low on Wednesday, hit by rallying U.S. dollar and Treasury yields, and as investors fretted over prospects of aggressive rate hikes from the U.S. Federal Reserve.

Spot gold dipped 1.1% to $1,633.51 per ounce by 9:59 a.m. ET (1359 GMT), after touching its lowest since Sept. 28 earlier in the session.

U.S. gold futures were 1.1% lower at $1,637.70.

"The market continues to be quite worried about aggressive Federal Reserve monetary tightening," said Bart Melek, head of commodity strategy at TD Securities.

"We're gonna have a fairly steep run up in interest rates and probably not a very quick pivot, so gold market is responding (to that)."

Several Fed officials have reiterated the U.S. central bank's commitment to raise interest rates aggressively to battle surging inflation, with markets pricing in a 75-basis-point hike in November.

Although gold is seen as a hedge against inflation, rising interest rates increase the opportunity cost of holding the non-yielding asset.

"A drop below September's low at (around) $1,615 looks very likely now, with $1,600 being the next target for the bears," Fawad Razaqzada, market analyst at City Index, said in a note.

Making bullion more expensive for overseas buyers, the dollar added 0.7%, while benchmark 10-year Treasury yields hit their highest since 2008. [USD/] [US/]

"(Gold's) three-month rolling correlation with other assets has strengthened too, namely with the S&P 500, bitcoin, Brent and with the VIX volatility index," Standard Chartered said in a note dated Tuesday. [MKTS/GLOB]

Elsewhere, spot silver shed 2% to $18.38 per ounce.

Silver is well poised for a significant climb upwards but for the time being the downward pressure coming from large rate hikes by global central banks is keeping its price subdued, said Rupert Rowling, a market analyst at Kinesis Money, in a note.

Platinum fell 1.8% to $891.49, and palladium lost 1.5% to $1,983.69.