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Gold prices fell more than 1% as the dollar jumped after an unexpected rise in monthly consumer prices that could support the case for aggressive rate hikes from the Federal Reserve.

Spot gold prices dropped more than 1% after higher-than-expected U.S. inflation data, and were trading 1.6% lower at $1,697.30 per ounce by 9:10 a.m. ET (1310 GMT).

U.S. gold futures fell 1.8% to $1,709.90.

"Gold has gapped lower on higher-than-expected CPI, with 75 basis points now definitely confirmed. The USD is surging and may continue to pressure gold," said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

"Gold is likely to hold the $1,690-1700 range in the short term with the USD unlikely to make new highs unless there's a very hawkish Fed result next week. It's likely though they will wait and see as the meeting after that is in November," Wong said.

Monthly U.S consumer prices unexpectedly rose in August as declining gasoline prices were offset by gains in the costs of rent and food. The consumer price index gained 0.1% last month after being unchanged in July, the Labor Department said on Tuesday.

In the 12 months through August, the CPI increased 8.3%, a deceleration from July's 8.5% rise.

"All in all, this basically points to continued work from the FOMC to bring inflation under control," said Ole Hansen, head of commodity strategy at Saxo Bank, also noting a jump in the dollar.

The dollar index rose 1%, making gold more expensive for overseas buyers. [USD/]

Although gold is considered a safe haven from inflation, rising U.S. rates increase the opportunity cost of holding bullion.

Spot silver fell 1.6% to $19.47 per ounce, having recorded its biggest one-day percentage gain since February 2021 on Monday.

Spot platinum fell 1.5% to $893.62, while palladium dropped 5.2% to $2,148.19.