The most active gold contract for June delivery plunged 27.9 U.S. dollars, or 2.12 percent, to close at 1,290.3 dollars per ounce.
The U.S. dollar index, which measures the buck against six rivals, went up 0.7 percent to 93.25 as of 1840 GMT.
Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall.
Higher yields also dented demand for nonyielding bullion as the benchmark 10-year Treasury note hit its highest levels since 2011. The 10-year Treasury note yield was up 8.9 basis points at 3.078 percent.
In a speech to the Economic Club of Minnesota Tuesday, San Francisco Federal Reserve President John Williams said he supports the Fed's target of three or four rate hikes this year with further gradual increases over the next two years.
Higher U.S. interest rates tend to boost the dollar and bond yields, making greenback-denominated gold more expensive for holders of other currencies and denting the appeal of non-yielding assets such as bullion.
As for other precious metals, silver for July delivery went down 37.6 cents, or 2.26 percent, to settle at 16.269 dollars per ounce. Platinum for July dropped 17.7 dollars, or 1.93 percent, to close at 897.2 dollars per ounce.