Gold slips on stronger dollar, higher rate expectations

Gold is seen as an inflation hedge, but low rates boost its appeal as a zero-yield asset.

• Gold fell 1.7% as a stronger dollar and rate hike fears weighed.
• Middle East conflict raises inflation and safe-haven demand.
• US inflation data and Fed meeting may impact gold prices further.

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Gold fell more than 1% on Monday, pressured by a stronger dollar and expectations of higher interest rates as the Middle East conflict fuelled inflation concerns.

Spot gold was down 1.7% at $5,080.99 per ounce at 11:10 a.m. ET (1510 GMT). U.S. gold futures for April delivery were down 1.3% at $5,089.80.

Inflation worries and expectations of higher interest rates driven by uncertainty over the war weighed on gold, but a prolonged conflict is also expected to sustain safe-haven demand and provide a floor for gold prices, said Jim Wyckoff, senior analyst at Kitco Metals.

Gold is seen as an inflation hedge, but low rates boost its appeal as a zero-yield asset.

The U.S. dollar firmed as soaring oil prices neared $120 a barrel, sending investors scrambling for cash on fears that a protracted Middle East war could severely disrupt energy supplies and hurt global growth. A stronger dollar makes greenback-priced bullion more expensive for other currency holders. [USD/] [O/R]

Israel's military said it had launched attacks in central Iran and struck the Lebanese capital Beirut. The war has effectively shut the Strait of Hormuz, where a fifth of global oil and seaborne liquefied gas is shipped near Iran's coast.

On the data front, the U.S. consumer price index for February is due on Wednesday, while the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, will be released on Friday.

"If we get some hot inflationary numbers this week, then that's really going to put the Federal Reserve into kind of a quandary. It could see a further drop in gold prices," Wyckoff said.

The U.S. central bank's next policy meeting is on March 17–18, where it is widely expected to hold interest rates steady.

Among other metals, spot silver was down 0.3% at $84.06 per ounce, platinum gained 0.6% to $2,148.25 and palladium rose 1.4% to $1,648.