The US Dollar Index (DXY), which tracks the dollar's relative value against a basket of major currencies, is approaching last week's monthly high, reducing gold's appeal as a non-yielding asset.
Strong dollar and Fed interest rate expectations weigh on gold prices
The recent rise in the US dollar has contributed to gold's decline as hopes of a significant interest rate cut faded. US employment data was mixed, with payroll growth weaker than expected but wage growth remaining strong, reducing the likelihood of a 50 basis point rate cut.
Traders currently see a 71% chance of the Federal Reserve cutting interest rates by 25 basis points when it meets on Sept. 17-18, with only 29% expecting a bigger cut, according to CME Group's FedWatch tool.
Upcoming U.S. economic data, including the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday, will provide further clues as to the Fed's next moves.
Fed officials, including New York Fed President John Williams and President Christopher Waller, have stressed that future policy decisions will depend heavily on economic data.
Stock market optimism and China trade data add to pressure
Investor optimism in the stock market is further weakening demand for gold. China's trade data showed its trade surplus rose to RMB 649.34 billion in August from RMB 601.98 billion, boosting global market sentiment.
