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Gold prices fell on Monday and were set for the biggest monthly drop since last September, as markets anticipated higher rate hikes by the U.S. Federal Reserve on the back of key economic data, while a stronger dollar put further pressure on bullion.

Spot gold was down 0.3% at $1,786.26 per ounce, as of 0428 GMT, taking its monthly drop to more than 2%.

U.S. gold futures were flat at $1,786.50.

"It's just that continuation of the real rates moving higher again and that's producing a more negative backdrop for gold, and I think the focus this week is going to be on non-farm payroll on Friday," said Stephen Innes, managing partner at SPI Asset Management.

"Markets (are) only expecting 100,000-150,000 new jobs. So, if we get something higher, that will further enhance the possibility of a 50-basis-point hike in March."

The U.S. Federal Reserve plans to raise interest rates in March on the assumption that the economy will largely steer clear of a fallout from the Omicron coronavirus variant and keep growing at a healthy clip.

Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

The dollar index hovered close to an 18-month high scaled last Friday, as traders eyed upcoming Australian, UK and European central bank meetings. A firmer greenback makes bullion more expensive for holders of other currencies. [USD/]

Innes said the possibility of a rate hike from the Bank of England could slow down the U.S. dollar from appreciating further, which may put a floor under the prices of safe-haven gold.

Spot gold may test a resistance at $1,803 per ounce, according to Reuters' technical analyst Wang Tao. [TECH/C]

Spot silver fell 0.8% to $22.24 an ounce, while platinum was flat at $1,007.99.

Palladium fell 0.4% to $2,367.25, but the auto-catalyst metal was set for its best monthly gain since February 2008, up about 25%.