Gold dips as oil gains add to rate uncertainty

Gold prices were under pressure on Tuesday as fading hopes for an Iran peace deal pushed oil prices higher, adding to concerns about inflation and the prospect of higher global interest rates. Spot gold fell 1% to $4,685.99 per ounce by 1320 GMT. U.S. gold futures lost 0.7% to $4,693.90. "Higher oil prices are raising the risk that the U.S. central bank and others might have to increase interest rates to fight what would surely emerge as stagflation. So gold is responding to that," said Bart Melek, global head of commodity strategy at TD Securities. Oil prices rose over 3% as hopes for a peace deal on Iran faded after U.S. President Donald Trump said a ceasefire with Iran was "on life support" as Tehran rejected a U.S. proposal to end the conflict. Data showed that U.S. consumer prices rose for a second straight month in April, resulting in the largest annual increase in inflation in nearly three years and further bolstering expectations the Federal Reserve would keep interest rates unchanged for a while. Although gold is considered a hedge against inflation, higher rates often put pressure on the non-yielding asset. Joni Teves, precious metals strategist at UBS Investment Bank, said they are maintaining a bullish outlook on gold as underlying drivers remain intact. "We still think prices can recover from current levels and continue to make new highs this year," she added. Focus is also on the Producer Price Index (PPI) scheduled for release on Wednesday and a meeting between Trump and Chinese President Xi Jinping in Beijing, scheduled to run from Thursday to Friday. Spot silver fell 2.4% to $84.06 after hitting a two-month high earlier. Silver prices jumped on expectations of a widening deficit as demand for physical silver grows, analysts at SP Angel said in a note. They added that higher oil prices are driving increased EV sales, which in turn is likely to boost demand for silver in solar and other renewable energy technologies. Elsewhere, Indian banks have resumed gold and silver imports after a hiatus that stretched for more than a month by agreeing to pay a 3% customs levy that earlier prompted lenders to halt shipments, sources told Reuters. Platinum eased 1.7% to $2,096.19, and palladium was down 2.4% at $1,473.00.