Gold moved lower at $2,650 after surging for two straight days at the end of last week. Weak Chinese economic data and a stronger USD currency impacted precious metals.
However, the prospect of further interest rate cuts this year and demand for safe assets may limit its downside.
At 9.30am, the price of gold was at $2,464.75, down 0.39% since it opened at the start of Monday's Asian trading session.
China's deflationary pressures increased in September. Consumer Price Index (CPI) inflation unexpectedly eased in September while the Producer Price Index (PPI) fell more than expected in the same period and highlighted the need for more stimulus measures.
The ongoing pressure in China is likely to put selling pressure on the yellow metal as China is the world's largest consumer of gold.
In the United States, the Producer Price Index (PPI) was unchanged in September indicating a still favorable inflation outlook and supporting Federal Reserve (Fed) rate cut bets in November.
According to Kitco analyst Jim Wyckoff, the PPI numbers support the rise in precious metals prices and suggest the Fed remains on track for two quarter-point interest rate cuts this year.
In addition, rising geopolitical tensions in the Middle East have fueled fears of a wider war in the region as well as boosting the price of traditional safe-haven assets such as gold.
On Sunday, at least four Israeli soldiers were killed and more than 60 injured in a drone strike in north-central Israel.
The number of casualties made the attack one of the bloodiest on Israel since the war began last October. Hezbollah has claimed responsibility for the attack.
