Gold prices fell more than 1% as the dollar jumped after an unexpected rise in August consumer prices cemented bets for aggressive rate hikes from the U.S. Federal Reserve.

Spot gold prices fell 1.2% to $1,703.80 per ounce by 1:45 p.m. ET (1745 GMT). U.S. gold futures settled 1.3% lower at $1,717.40.

"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 dollar index rose 1.3%, making gold more expensive for overseas buyers.

"The headwinds that (are) coming now from dollar strength and yields will create some short challenges once again," said Ole Hansen, head of commodity strategy at Saxo Bank.

Markets now see an 81% chance of a 75-basis-point rate hike by the Fed at its Sept. 20-21 meeting. Although gold is considered a hedge against inflation, rising U.S. rates increase the opportunity cost of holding bullion.

Spot silver fell 1.4% to $19.51 per ounce, having recorded its biggest one-day percentage gain since February 2021 on Monday.

"Following a ferocious short squeeze in silver, with 54% of silver's demand tied to fabrication, silver also remains highly sensitive to our deteriorating gauge of commodity demand," TD Securities said in a note.

Spot platinum fell 2.1% to $887.94, while palladium dropped 6.4% to $2,120.16.

(Reporting by Kavya Guduru and Arundhati Sarkar in Bengaluru; Editing by Mark Porter, Vinay Dwivedi and Maju Samuel)