Gold prices gained Monday on mounting expectation of a Federal Reserve rate cut next week, while investors awaited the U.S. inflation report for further clues on the potential size of the cut.

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Spot gold rose 0.2% to $2,502.29 per ounce by 9:22 a.m. ET (1322 GMT) and U.S. gold futures were up 0.3% to $2,531.50.

The expectation that the Fed is going to begin easing monetary policy next week is broadly supportive for the gold market, said Peter A. Grant, vice president and senior metals strategist at Zaner Metals, who thinks gold is destined for new all-time highs.

Bullion hit a record high of $2,531.60 on Aug. 20.

"The market seems to be reconciling that the Fed is probably more likely to do the smaller 25 basis point cut and that's sort of been my position all along," Grant added.

Traders see a 75% chance of a 25-basis point cut at the Fed's meeting next week, and a 25% chance of a 50 bp reduction, according to the CME FedWatch tool.

Pricing for a big cut was around 50% after jobs data on Friday showed U.S. employment increased less than expected in August, but a drop in the jobless rate to 4.2% suggested the labor market was not falling off a cliff to warrant a half-point cut.

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Lower interest rates reduce the opportunity cost of holding the zero-yield bullion.

Investors will now watch out for August U.S. consumer price data on Wednesday and the producer price index on Thursday for further clues on the interest rate cut path.

"If inflation numbers come much lower than expected and raise hopes for a 50-bp cut, then gold could hit all-time highs. But even if the consensus stays for a 25-bp cut, gold wouldn't see a dramatic loss in prices as the Fed is definitely cutting rates," Kinesis Money market analyst Carlo Alberto De Casa said.

Spot silver rose 0.9% to $28.17 per ounce, platinum gained 2.3% to $942.60 and palladium was up nearly 3% to $937.75.