Gold falls as investors assess Fed’s tighter path

After four straight weeks of gains, the gold fell as investors assessed the outlook for the Federal Reserve's tighter path and on more signs that China is struggling to recover.

After the longest weekly gains in almost a year, the bulk fell by 0.5% on Monday. The Fed has been less aggressive in raising borrowing costs because of the rising of the precious metal amid cooling inflation in the US.

China's central bank unexpectedly cut its key interest rate as it ramped up support for an economy weighed down by virus lockdowns and a deepening property crisis. Economic data released Monday shows the country's recovery is ebbing, potentially crimping physical demand for gold in the world's largest consumer.

The Fed's July meeting on Wednesday will give traders clues as to what conditions would prompt the US central bank to go big with tightening again in September, according to traders. The stakes in financial markets have gone up between 50 and 75 basis points on the size of the next increase.

The Fed Bank of Richmond President Thomas Barkin said on Friday that the central bank needs to keep raising interest rates until it is clear that inflation is running at its 2% target, even if the economy weakens in order to avoid a policy mistake similar to the 1970s.

Inflation in the US is likely to remain high in the fourth quarter, which could cause some near-term headwinds for gold, although the worst is likely to be over, said Yeap Jun Rong, market strategist at IG Asia Pte. Markets may have already priced the peak inflation narrative to a large extent because of the fact that today s move lower could be due to some profit-taking. Spot gold dropped by 0.5% to $1,794. After climbing 0.7% on Friday, Singapore had 09 an ounce as of 1: 16 p.m. The Bloomberg Dollar Spot Index was up 0.1%. Investors are watching the US congressional delegation visit to Taiwan, which risks keeping tensions with China high after the trip of House Speaker Nancy Pelosi earlier this month.

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