Fed Rate Hike Bets Send Gold Prices Plummeting

Gold prices declined on Monday as expectations of a US Federal Reserve interest rate hike this week strengthened. The Fed's policy meeting is scheduled for Tuesday and Wednesday, and markets are now fully pricing in a rate hike following last week's hot inflation data.

US consumer prices accelerated in August, with underlying inflation posting its largest increase in four months. This has reinforced US rate hike expectations, with traders pricing in about an 89 percent chance of a rate hike at the central bank's policy meeting this week, up from about 67 percent prior to the inflation data last week.

The dollar firmed at an over one-week high, making greenback-priced bullion more expensive for holders of other currencies. Major banks such as Goldman Sachs and HSBC now expect the Fed to raise interest rates by 25 basis points at its policy meeting on Tuesday and Wednesday.