(Bloomberg) -- Gold dropped -- following four straight weeks of gains -- as investors assessed the outlook for the Federal Reserve's tightening path and on more signs China is struggling to recover.
Bullion fell 0.5% on Monday, after the longest run of weekly gains in almost a year. The precious metal has been rising amid cooling inflation in the US, which backs the case for the Fed to be less aggressive in raising borrowing costs.
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 showed the country's recovery is ebbing, potentially crimping physical demand for gold in the world's largest consumer.
Traders will be looking to the release of minutes from the Fed's July meeting on Wednesday, which may offer clues as to what conditions would prompt the US central bank to go big with tightening yet again in September. Bets in financial markets on the size of the next increase have swung between 50 and 75 basis points.
Fed Bank of Richmond President Thomas Barkin said Friday the central bank needs to keep raising interest rates until it's clear inflation is running at its 2% target, even if the economy weakens, to avoid a policy mistake similar to the 1970s.
Inflation in the US is likely to remain high into the fourth quarter, which could drive some near-term headwinds for gold, although the worst is likely over, said Yeap Jun Rong, a market strategist at IG Asia Pte. “Today's move lower could be due to some profit-taking as markets may have already priced the peaking-inflation narrative to a large extent.”
Spot gold dropped 0.5% to $1,794.09 an ounce as of 1:16 p.m. in Singapore, after climbing 0.7% on Friday. The Bloomberg Dollar Spot Index rose 0.1%. Silver, platinum and palladium fell.
Investors are also monitoring a two-day visit of a US congressional delegation to Taiwan, which risks keeping tensions with China high after House Speaker Nancy Pelosi's trip earlier this month.
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