Economists are warning investors that gold prices could fall to last month's lows near $1,700 as the US dollar continues to post strong gains.

The US dollar index traded at 109 points, testing a 20-year high in July. The US dollar was well above parity with the euro in what analysts described as an unstoppable rally.

As for how much momentum the US dollar has, FX analysts at Brown Brothers Harriman said a solid break above its 20-year high at 109.24 could lead to 120.

On Monday, currency analysts at TD Bank said they took profits in short trading of the euro against the US dollar. They added that the euro could fall further against the US dollar.

Economists noted that the US dollar is also supported by rising bond yields, with 10-year yields again exceeding 3%. But they also stressed that these two are significant obstacles for the precious metal.

The current market conditions are taking their toll on gold as it struggles to hold on to critical support levels.

The future of gold is entirely in the hands of the Federal Reserve, and markets are predicting that the US Central Bank will maintain its aggressive monetary policy for longer than originally expected.

One thing to watch out for is when Federal Reserve Chairman Jerome Powell gives a speech at the annual central bank symposium in Jackson Hole, Wyoming, on Friday.

There could be a big move on Friday as the markets anticipate either a 50 or 75 basis point hike in interest rates by the Federal Reserve. And everyone will be waiting for some clarity from Powell at Jackson Hole.

A strong US dollar and rising bond yields are weighing on gold's role as a safe haven as stock markets experience their biggest sell-off since June.

The yellow metal no longer acts as a good hedge against market sell-offs, instead it sinks along with risky assets. For gold to rise in price, a weak dollar is needed.

If Powell reinforces expectations that the Fed will raise rates in September, this will strengthen the dollar. Alternatively, Powell could express concern about the US economic outlook and reduce the likelihood of significant rate changes.

If gold prices are below 1,730, then a sell-off to $1,700 is just around the corner. Alternatively, if prices are above 1,754, they may continue to rise.