Gold eased on Monday as the dollar held firm, while market participants remained cautious, watching out for any potential Iranian retaliation to U.S. strikes on its nuclear sites.

Spot gold was down 0.1% at $3,365.29 an ounce, as of 1003 GMT. U.S. gold futures fell 0.1% to $3,381.30.

The dollar rose 0.6% against its peers, making gold more expensive for foreign buyers.

Higher energy prices could potentially delay a Fed rate cut and strengthen the dollar, said Ole Hansen, head of commodity strategy at Saxo Bank.

"Continued and multiple geopolitical uncertainties will likely continue to underpin and prevent prices from a deeper correction," he added.

Iran and Israel traded air and missile strikes as the world braced for Tehran's response to the U.S. attack on its nuclear sites and U.S. President Donald Trump raised the idea of regime change in the Islamic Republic.

Iran vowed to defend itself a day after the U.S. dropped 30,000-pound bunker-buster bombs onto the mountain above Iran's Fordow nuclear site.

The U.S. bombing of Iran's nuclear sites injected fresh uncertainty into the outlook for inflation and economic activity at the start of a week chock-full of new economic data and central banker commentary, including two days of Congressional testimony from Federal Reserve Chair Jerome Powell.

Last week, the U.S. central bank held interest rates steady, but slowed its overall outlook for rate cuts in response to a more challenging economic outlook.

Investors are currently anticipating 50 basis points worth of Fed rate cuts by the end of this year, starting in October.

Bullion tends to perform well in low-interest-rate environments and during periods of uncertainty.

Elsewhere, spot silver rose 0.4% to $36.14 per ounce, platinum was up 1.8% at $1,287.84, while palladium gained 1.9% to $1,063.43.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Vijay Kishore)