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Gold prices edged up on Monday as the dollar softened, but gains were capped by a surge in energy prices that fuelled inflation worries and further dimmed expectations for U.S. Federal Reserve interest rate cuts this year.
Spot gold rose 0.3% to $4,505.86 per ounce as of 0330 GMT. U.S. gold futures for April delivery gained 0.3% to $4,535.80.
The U.S. dollar eased, making dollar-denominated commodities more affordable for holders of other currencies.
"Gold's price action last week suggested a reaction to oversold behaviour, and a possible reversal of recent declines," said Nicholas Frappell, global head of institutional markets at ABC Refinery.
"However, this needs to be confirmed by price action this week. Given the rapid flow of headline news, it's easiest to expect volatility."
Brent crude rallied above $115 a barrel after Yemeni Houthis launched attacks on Israel over the weekend, widening the ongoing war and adding to inflation woes. The contract is up 60% so far in March, a record monthly rise.
Traders see little chance of a U.S. rate cut this year, as higher energy prices threaten to feed into broader inflation and limit scope for monetary easing. That compares with expectations for two rate cuts before the conflict began.
While inflation typically boosts gold's appeal as a hedge, elevated interest rates weigh on the non-yielding metal's demand.
Gold has fallen more than 14% so far this month, marking its steepest monthly decline since October 2008, pressured by the U.S. dollar, which has gained more than 2% since the U.S.-Israeli war on Iran began on February 28.
"The bigger macro picture behind that underperformance is the huge shift in interest rate expectations... The USD has picked up on that," said Nicholas Frappell, global head of institutional markets at ABC Refinery.
Spot silver rose 0.8% to $68.67 per ounce. Spot platinum gained 2.5% to $1,909.45 and palladium rose 3.2% to $1,420.63.
(Reporting by Noel John in Bengaluru; Editing by Sumana Nandy and Harikrishnan Nair)
