Gold prices fell on Monday and were set for the biggest monthly drop since September as markets anticipated higher US interest rates, while a stronger dollar added to the pressure.

Spot gold was down 0.1% at $1 790.00 per ounce by 08:40 GMT, taking its monthly drop to more than 2%.

US gold futures were up 0.3% to $1 791.60.

“It’s just that continuation of the real rates moving higher again and that’s producing a more negative backdrop for gold, and I think the focus this week is going to be on (US) non-farm payroll (data) on Friday,” said Stephen Innes, managing partner at SPI Asset Management.
“Markets (are) only expecting 100 000 to 150 000 new jobs. So, if we get something higher, that will further enhance the possibility of a 50-basis-point hike in March.”

The US Federal Reserve plans to raise interest rates in March on the assumption the economy will largely steer clear of fallout from the Omicron coronavirus variant and keep growing at a healthy clip.

Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

The dollar index hovered close to an 18-month high scaled on Friday, as traders eyed upcoming Australian, UK and European central bank meetings. A firmer greenback makes bullion more expensive for holders of other currencies.

Innes said the possibility of a rate hike from the Bank of England could slow the US dollar from appreciating further, which may put a floor under the prices of safe-haven gold.

Spot gold may test a resistance at $1 803 per ounce, according to Reuters’ technical analyst Wang Tao.

Spot silver rose 0.4% to $22.50 an ounce, while platinum rose 0.3% to $1,011.04.

Palladium was flat at $2 377.26, but the auto-catalyst metal was set for a monthly gain of over 25%, its best since February 2008.