Gold prices drop as US rate-cut hopes fade

Gold prices declined on Monday, as hopes of a March interest rate cut by the Federal Reserve faded, while traders awaited key U.S. economic data and major central bank policy meetings this week.

Spot gold GOLD was down 0.2% at $2,026.40 per ounce, as of 1237 GMT. U.S. gold futures GOLD were steady at $2,029.00.

"At the moment, we have this asymmetry between what central banks are saying and what the market was pricing," said Carlo Alberto De Casa, market analyst at Kinesis Money.

"The market is now repricing, and is changing this view and realizing that there was too much optimism about the central bank's (rate cut) decisions."

The U.S. dollar index DXY fell around 0.1%, while yields on benchmark U.S. 10-year Treasury notes US10Y slipped from a more than a month high.

Bullion fell about 1% last week - its biggest weekly decline in six - after Fed officials said they need more inflation data in hand before any rate cut judgment could be made and that the baseline for cuts to start was in the third quarter.

Traders now price in about a 48% chance that the Fed will cut interest rates in March, according to the CME Fed Watch Tool.

Investors will be watching out for the U.S. flash PMI report on Wednesday, fourth-quarter advance GDP estimates due on Thursday and personal consumption expenditures data on Friday for more cues on interest rates.

Higher interest rates increase the opportunity cost of holding bullion.

Spot silver XAGUSD1! fell 1.8% to $22.19 per ounce, platinum PL1! lost 0.3% to $896.2, and palladium XPDUSD1! slipped 2.9% to $919.25.

"We think platinum will again become moderately more expensive than palladium," UBS said in a note.

UBS expects platinum to be undersupplied by 300,000 ounces in 2024, for a second consecutive year, mainly on the back of the platinum to palladium substitution in auto catalysts.