Gold prices rose on Monday, taking some relief from a drop in the dollar ahead of key inflation data due this week, while copper prices rose sharply as Chinese inflation data showed some signs of improvement.

The yellow metal was nursing a steep loss from last week, as concerns over sticky inflation and higher-for-longer U.S. rates pushed the dollar to a near six-month high. The greenback saw some profit taking on Monday.

Focus is now squarely on U.S. consumer inflation data for August, due on Wednesday. The reading is expected to have increased from the prior month, giving the Federal Reserve more impetus to keep interest rates higher for longer.

Spot gold rose 0.4% to $1,927.06 an ounce, while gold futures expiring in December rose 0.4% to $1,950.45 an ounce by 01:03 ET (05:03 GMT).

U.S. inflation, Fed meeting in focus
A hotter U.S. inflation reading could set up gold prices and metal markets for more losses, especially with a Federal Reserve meeting on tap next week. Analysts expect consumer price index inflation to have risen 0.6% in August from the prior month, accelerating from the 0.2% gain seen in July.

While the Fed is widely expected to keep rates on hold in September, any more signs of sticky inflation could push the bank into raising interest rates further this year. U.S. rates are already at their highest levels in over two decades.

Rising interest rates bode poorly for gold, given that they increase the opportunity cost of investing in the non-yielding asset. This trade had battered gold through the past year, and has limited any major recovery in the yellow metal so far in 2023.

Higher U.S. rates spell more gains in the dollar and Treasury yields, which is also expected to weigh on gold prices.

Copper surges as Chinese inflation improves
Among industrial metals, copper prices rose sharply on Monday, supported chiefly by improved Chinese inflation readings released over the weekend.

Copper futures jumped 1.3% to $3.7615 a pound, rebounding from an over three-week low.

Data released over the weekend showed that Chinese consumer inflation returned to positive territory in August, while producer price inflation also fell at a slower pace than seen earlier this year.

The data, coupled with Beijing rolling out more supportive measures for the property sector, helped brew some optimism over an economic recovery in the world’s largest copper importer.

But other readings for August still painted a mixed picture of the Chinese economy, as it struggles with a slowing post-COVID recovery.