May 4 (Reuters) - Gold prices fell in thin trading on Monday, pressured by rising tensions between the U.S. and Iran that increased inflation worries and reduced expectations of interest rate cuts, while a firmer U.S. dollar also weighed.
Spot gold was down 1.6% at $4,538.19 per ounce, as of 1020 GMT. U.S. gold futures for June delivery fell 2.1% to $4,548.30.
Volumes were low as markets in China, Japan and the UK are closed for holidays.
Oil prices climbed to over $113 a barrel after Fars news agency reported that a U.S. warship intending to pass through the Strait of Hormuz was turned back after ignoring Iran's warning, adding that two missiles hit it when it was sailing near Jask island.
"A slightly strengthening dollar and modestly higher interest rates - likely influenced by oil prices moving higher - are probably the drivers weighing on the price of gold," said UBS analyst Giovanni Staunovo.
The dollar (.DXY), edged higher against peers, making dollar-priced bullion more expensive for other currency-holders.
OIL PRICES HAVE ALMOST DOUBLED
The Iran war has pushed Brent to almost double its level at the start of the year.
Rising fuel prices feed into inflation as manufacturers pass on expenses to consumers, often forcing central banks to keep interest rates higher for longer to battle higher costs.
Unlike Treasury yields, bullion bears no interest. This has pushed gold down by more than 13% since the start of the war, due to the high opportunity cost of holding it in an elevated interest rate environment.
"Spot gold is likely to oscillate within the mid-$4k region, with its upside capped as long as inflation risks continue weighing on the market's collective mind," said Han Tan, chief market analyst at Bybit.
The Fed left interest rates on hold last Wednesday. Several officials who disagreed with the policy statement said the oil price shock meant that the U.S. Fed should be clear it can no longer lean towards interest rate cuts and that a rise in borrowing costs is possible in the future.
Spot silver fell 3.5% to $72.74 per ounce, platinum lost 2.9% at $1,931.92, and palladium shed 4.1% to $1,462.00.
Reporting by Anjana Anil in Bengaluru; editing by Barbara Lewis
