Gold prices dropped 1% on Wednesday following U.S. consumer price data for July, which met expectations and dampened hopes for a significant interest rate cut by the Federal Reserve next month.

Spot gold declined to $2,440.62 per ounce, while U.S. gold futures fell 1.2% to $2,478.80.

Market analysts noted that the likelihood of a large rate cut in September diminished after the data release. The U.S. consumer price index (CPI) rose 0.2% in July, reversing a 0.1% decline in June. Over the past year, the CPI increased by 2.9%, slightly lower than June's 3% increase.

As a result, market expectations for a 50 basis point rate cut in September dropped to 41%, down from 50% prior to the CPI report, according to CME's FedWatch Tool.

Lower interest rates typically support gold prices by reducing the opportunity cost of holding the metal. However, the shift in expectations toward a smaller 25 basis point cut has reduced some of the momentum in the gold market.

Elsewhere in the metals market, spot silver fell 2.2% to $27.23, platinum dipped 1.6% to $921.27, and palladium was down 1.7% at $922.25.