Spot gold was down 0.2% at $1,784.49 per ounce, as of 0256 GMT. U.S. gold futures eased 0.2% to $1,801.20.
On Monday, gold prices rose towards a one-month high scaled last week, as the dollar and Treasury yields pulled back after a rally driven by Friday’s blockbuster U.S. jobs report.
Investors are looking ahead to the U.S. consumer price report for July, which will be released on Wednesday. Analysts polled by Reuters expect annual inflation to have eased to 8.7% from 9.1% in June.
“Investors understand that both the U.S. and global economies are facing significant challenges, but the emphasis will be on the question for how long higher rates will be a weight on the market,” said Clifford Bennett, chief economist at ACY Securities.
“Any surprise softening in the U.S. inflation number could well be the catalyst for a tremendous surge in the gold price.”
Fed funds futures traders are now pricing for a 64.5% chance of another 75-basis-point rate hike at the U.S. central bank’s next policy meeting in September to combat soaring inflation.
Although gold is seen as a hedge against inflation, higher U.S. interest rates dull non-yielding bullion’s appeal.
U.S. consumers’ expectations for where inflation will be in a year and three years dropped sharply in July, a New York Federal Reserve survey showed on Monday, indicating U.S. central bankers are winning the fight.
China announced new military drills around Taiwan on Monday, eliciting concern from U.S. President Joe Biden, a day after the scheduled end of Beijing’s largest exercises to protest last week’s visit to the island by U.S. House Speaker Nancy Pelosi.
Spot silver fell 0.3% to $20.58 per ounce, platinum
was steady at $939.49, and palladium slipped 1.4% to $2,199.57.