Gold prices fell on Monday after strong U.S. jobs data boosted expectations of higher interest rates, while investors awaited key U.S. inflation data later this week for further clarity on the Federal Reserve's monetary policy path.
Spot gold fell 0.8% to $4,396 an ounce, after declining 1% on Friday.
US gold futures for December delivery also fell by 0.75% to $4,442 an ounce.
Data released on Friday showed that job growth in the United States accelerated sharply during August, while the unemployment rate held steady at 4.1%, indicating an improving labor market after recent difficulties and keeping the possibility of raising interest rates this month on the table.
US inflation under market scrutiny
The US Producer Price Index data is due to be released on Thursday, followed by the Consumer Price Index report on Friday, amid widespread anticipation of what the new readings will reveal about the path of inflation.
Tim Waterer, chief market analyst at KCM Trade, said the jobs data came in clearly as a positive surprise, putting some pressure on gold, but it was not enough on its own to decide on an interest rate hike in September.
He added that the key missing piece of the puzzle will come out this week with the release of the US Consumer Price Index data, noting that a strong inflation reading would bolster expectations of an interest rate hike by the Federal Reserve, further raise bond yields, and increase pressure on gold.
According to the CME Group's FedWatch tool, markets are currently pricing in a 58.4% probability of an interest rate hike at the Federal Reserve meeting scheduled for September 15 and 16.
High interest rates are putting pressure on the appeal of gold.
Gold is usually seen as a hedge against inflation, but rising interest rates tend to reduce the appeal of the non-yielding precious metal, compared to assets that provide returns linked to interest rates.
In the context of monetary policy, US President Donald Trump said on Friday that if the Federal Reserve does not lower interest rates, he will stop doing business with countries with which the United States has a trade deficit.
Regarding developments in the Middle East, Iran said it would intensify its efforts to address the problems caused by US sanctions that are severely damaging its economy.
A senior Iranian official warned of a painful response if his country is attacked again, amid ongoing geopolitical tensions that are adding an element of uncertainty to global markets.
Silver, platinum, and palladium are also declining.
As for other precious metals, spot silver fell 0.6% to $65.80 an ounce.
Platinum also fell by 1.1% to $1,800.59 an ounce, while palladium declined by 0.5% to $1,394 an ounce.
Markets are watching US inflation data in the coming days as a key factor in determining monetary policy expectations, especially after improved labor market data. Any stronger-than-expected inflation reading could increase pressure on gold, while weaker data could give the precious metal some breathing room to recover some of its gains.
