Gold slid more than 1 percent on Tuesday, falling for a third day to hit its lowest this year as a rise in U.S. borrowing costs pushed up the dollar and overshadowed the impact of strife in Gaza.

Downward momentum in gold picked up after the metal broke below support at its 200-day moving average at $1,306 an ounce. That had firmly underpinned prices earlier this month.

Spot gold was down 1.2 percent to $1,207.06 an ounce by 1304 GMT, having earlier hit its lowest since late December at $1,296.31. U.S. gold futures for June delivery were down 1.6 percent to $1,296.90 an ounce. Israeli troops shot dead dozens of Palestinian protesters on the Gaza border on Monday when the high-profile opening of the U.S. embassy to Israel in Jerusalem by the Trump administration raised tension to boiling point.

But gold investors were fixated on the dollar, which rose versus a currency basket as 10-year U.S. bond yields shot above 3 percent, sending borrowing costs higher in a number of other countries. "The market is getting increasingly disappointed about (gold's) inability to react to those (geopolitical) drivers," said Ole Hansen, head of commodity strategy at Saxo Bank.

"We're up against bond yields, the dollar and the fact that rising oil prices have at this stage accelerated expectations for rate hikes in the United States, due to the risk of inflation."

A Federal Reserve official this week backed the case for further interest rate hikes in the United States, saying inflation had not yet reached the U.S. central bank's 2 percent goal in a sustained way.

Higher U.S. interest rates tend to boost the dollar and push up bond yields, making greenback-denominated gold more expensive for holders of other currencies and denting the appeal of non-yielding assets such as gold. "The market's been waiting for the next rate hike by the Fed ... and I think gold prices are going to remain under pressure till we get through that hike," ANZ analyst Daniel Hynes said in a note.

Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell 0.17 percent to 856.17 tonnes on Monday. Silver was down 1.5 percent at $16.25 an ounce, having hit its lowest in nearly two weeks in earlier trade at $16.22 an ounce. Platinum was down 0.9 percent at $896.49 per ounce, while palladium was 3 percent lower at $965.25 an ounce having broken below support at its 200-day moving average, currently at $988 an ounce.

Britain's Competition and Markets Authority said on Tuesday it would examine whether a takeover of miner Lonmin by South Africa's Sibanye-Stillwater would lessen competition.