Mr Dunn, a protege of the poet Philip Larkin, was recognised for his body of work spanning more than four decades.
Poet laureate Carol Ann Duffy, who chaired the medal's judging committee said: "Douglas Dunn's sparkling, erudite and distinguished body of work has long been one of the grace notes of British poetry.
"He can be both jocular and wise, sensory or bookish, as well as powerfully moving: his Elegies are among the most touching and honouring pieces of recent decades, giving us poems that will live for generations. He stands deservedly among the greatest poets that Scotland has produced."
The committee met earlier this month and were unanimous in recommending the Scottish poet as this year's recipient of the award, on the basis of a lifetime's contribution to literature, and his distinguished output as a poet.
Mr Dunn's debut collection of verse Terry Street, published in 1969, was acclaimed as groundbreaking and chronicled the life of a working-class area of Hull.
The poet had studied at the city's university and also worked at the institution's library below Philip Larkin who was an major influence on his career.
He has produced more then ten collections of poetry with Elegies (1985), a personal account of his first wife's death, popular with both the public and critics.
The Gold Medal for Poetry was instituted by George V in 1933 at the suggestion of the then poet laureate, John Masefield.
The honour is awarded for excellence in poetry for either a body of work or an outstanding poetry collection published during the year of the award.
The Queen will present the medal to Mr Dunn next year.