Gold Eases as Oil Surge Lifts Fed Rate-Hike Expectations

Gold prices edged lower on Monday, pressured by a jump in oil prices that revived inflation worries and strengthened expectations of a US interest rate increase at this week's Federal Reserve policy meeting.

Spot gold declined 0.3% to $4,334.31 an ounce by 0330 GMT, following a third straight weekly loss. US gold futures fell 0.8% to $4,375.00.

"Gold isn't finding conditions to its liking. Rising energy prices plus climbing rate expectations ahead of the Fed and BoJ meetings are delivering a clear yield headwind for gold," said Tim Waterer, chief market analyst at KCM Trade. He added that dips should still attract buyers as an uncertainty hedge while geopolitics and rate policy remain fluid.

Expectations of a Fed hike were reinforced by data last week showing US consumer prices accelerated in August, with a key measure of underlying inflation posting its largest increase in four months. Traders now price about an 86.5% chance of a rate increase at the central bank's meeting on Tuesday and Wednesday, up from roughly 67% before the inflation data, according to the CME FedWatch Tool.

The Bank of Japan is also widely expected to raise rates on Friday, as persistent inflation and resilient growth have raised the prospect of further tightening by major central banks, amid rising energy prices and little sign of easing Middle East tensions.

Gold is typically viewed as an inflation hedge, but higher interest rates tend to reduce the appeal of non-yielding bullion.

Oil prices climbed more than 2% on Monday after fresh Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf compounded supply concerns following the closure of a key Saudi oil pipeline. Middle East diplomacy appeared to falter after a meeting between Iran and other Gulf states was postponed.

Among other metals, spot silver slipped 0.7% to $64.02 an ounce, platinum held steady at $1,796.90, and palladium was little changed at $1,298.80.