May 4 (Reuters) - Gold prices fell nearly 2% on Monday as heightened U.S.-Iran tensions boosted the dollar and reinforced inflation concerns that kept expectations of higher interest rates alive.
Spot gold was down 1.9% at $4,526.88 per ounce, by 11:26 a.m. ET (1526 GMT). U.S. gold futures fell 2.3% to $4,537.90.
"The latest news clearly didn't give the market confidence that everything is going to be okay and again raised the specter of inflation issues, along with fairly hawkish signals to the market on interest rates," said Bart Melek, global head of commodity strategy at TD Securities.
A fire broke out at the Fujairah Oil Industry Zone, authorities in the emirate said, following what they described as a drone attack originating from Iran. While, the U.S. military said two U.S. Navy guided-missile destroyers had entered the Gulf to break an Iranian blockade.
The U.S. dollar firmed and Brent prices jumped more than 5%. A stronger U.S. currency makes dollar-priced metals more expensive for holders of other currencies.
Meanwhile, soaring energy prices have intensified inflation fears, strengthening bets that central banks will keep interest rates higher for longer.
Barclays joined a growing list of brokerages to bet on no policy easing from the U.S. Federal Reserve this year. Last week, the Fed left rates unchanged in its most divided decision since 1992 on deepening concerns about higher energy prices percolating through the economy.
Key data due this week include U.S. job openings, the ADP employment report and the April payrolls report.
Even as gold serves as a hedge against inflation and geopolitical uncertainty, the metal loses appeal in a high-rate environment as it offers no yield.
"I see strong support levels around $4,200 for gold. I do think there are broader issues later in the year that could support prices.
However, uncertainty and possible rate hikes could push some traders to exit positions in the near term," Melek said.
Spot silver fell 2.9% to $73.12, platinum lost 2.1% to $1,947.05, and palladium shed 3.5% to $1,471.50.
Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Shilpi Majumdar and Shailesh Kuber
