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Gold ticked lower on Monday after a broad-based rebound in the dollar and yields. Spot gold fell 0.8 percent to $2,029.19 per ounce, while U.S. gold futures were down 0.7 percent at $2,035.05.
The dollar benefited from risk aversion as the escalation of cross-border fighting between Israel and Hezbollah complicated a U.S. push to prevent a regional conflict.
The dollar also received some support after U.S. Congressional leaders agreed on the overall spending level for the current fiscal year in an attempt to avoid a partial government shutdown later this month.
Euro zone government bond yields rose after government data showed U.S. job growth surged unexpectedly in December.
The yields on the European 10-year benchmark note and the German 10-year rose for a third straight session ahead of U.S. consumer price inflation and producer price inflation data due this week.
Markets currently expect a chance of about 67 percent for a Fed rate cut by March, according to the CME FedWatch tool.