Gold prices fell 1% on Monday on profit-taking, as investors looked forward to key inflation figures this week for clues on the U.S. interest rate cuts this year.

Spot gold fell 1% to $2,336.76 per ounce by 1745 GMT. It had hit its highest level since April 22 on Friday. U.S. gold futures settled 1.3% lower at $2,343.
 

"This could be some people exiting the gold market prior to some of these risk events such as (Fed chief) Jerome Powell speaking, PPI and CPI all coming out this week," said Phillip Streible, chief market strategist at Blue Line Futures.

"Gold bulls are rightfully concerned that the Federal Reserve needs weaker inflation data, not just weaker employment figures, to justify cutting rates," said Tai Wong, a New York-based independent metals trader.

Gold is down

Gold prices rose by over 1% last week, driven by weak jobs data that bolstered expectations of a U.S. interest rate cut this year.

A significant majority of economists surveyed by Reuters now anticipate that the Federal Reserve will lower its key interest rate twice this year, beginning in September.

Traders are currently pricing in a roughly 63% likelihood of a rate cut in September, according to the CME FedWatch Tool. Lower interest rates decrease the opportunity cost of holding non-yielding gold.
This week, market attention will shift to the U.S. Producer Price Index (PPI) data on Tuesday and the Consumer Price Index (CPI) data scheduled for release on Wednesday.

In other precious metals, spot silver increased by 0.3% to $28.23 per ounce, while palladium decreased by 1.7% to $961.50.
 

US inflation data

Inflation met forecasts in July, with rising housing-related costs contributing to the increase, according to a Labor Department report released Wednesday. This data suggests that a potential interest rate cut in September remains on the table.

The consumer price index (CPI), which tracks the price changes for a wide range of goods and services, rose by 0.2% for the month. This brought the annual inflation rate to 2.9%. Economists surveyed by Dow Jones had anticipated both a 0.2% monthly increase and a 3% annual rate.
When excluding food and energy, the core CPI also showed a 0.2% monthly rise and a 3.2% annual rate, aligning with expectations.
 

U.S. consumer price index

While food inflation remained modest for the month, several categories experienced notable price increases. Eggs saw a significant rise of 5.5%, whereas cereals and bakery items decreased by 0.5% and dairy products fell by 0.2%.

Inflation readings are gradually approaching the central bank's 2% target. A Tuesday report from the Labor Department revealed that producer prices, an indicator of wholesale inflation, increased by only 0.1% in July and were up 2.2% year-over-year.

Federal Reserve officials have expressed a readiness to consider easing monetary policy but have avoided specifying a timeline or the pace of potential rate cuts. Current futures market expectations suggest a modest probability of a 0.25 percentage point reduction at the Fed’s upcoming meeting on September 17-18, with a possibility of at least a full percentage point of cuts by the end of 2024.