Sept 2 (Reuters) - Gold prices fell to their lowest in more than three weeks on Wednesday, pressured by a stronger dollar as the biggest exchange of fire between the U.S. and Iran since July threatened to fuel global inflation.
Spot gold was little changed at $4,330.79 an ounce by 1155 GMT after hitting its lowest since August 7. U.S. gold futures for December delivery dropped 0.4% to $4,377.90.
"The lingering geopolitical uncertainty pushes oil prices higher, sustaining inflationary risks and pressure on the Fed to raise rates, boosting the dollar and compounding gold's headwinds," said Nikos Tzabouras, a senior market analyst at Jefferies-owned Tradu.com.
"The precious metal is caught in a structural tug-of-war between aggressive Federal Reserve repricing and currency debasement trends, fuelling ongoing volatility," he added.
The U.S. and Iran found themselves back on a war footing after the most significant exchange of fire in weeks, with Washington threatening even more devastating strikes, pushing oil prices to their highest in about a month .
Concerns about the economic impact of the energy shock sent investors towards the U.S. dollar, lifting it to a two-week high . A stronger U.S. currency makes dollar-priced bullion more expensive for buyers holding other currencies.
U.S. Federal Reserve Governor Michael Barr said on Tuesday that it will be time for the central bank to raise interest rates if inflation does not cool quickly, echoing comments last week by Fed Chair Kevin Warsh.
Traders are now pricing in a 68% chance of an interest rate hike at the central bank's policy meeting this month, the CME FedWatch Tool showed.
While gold is typically seen as an inflation hedge, higher interest rates tend to diminish the appeal of the non-yielding metal to investors.
The latest readings on the health of the U.S. economy come with the ADP employment report on Wednesday and non-farm payrolls data on Friday.
Spot silver gained 0.1% to $64.35 an ounce while platinum lost 0.4% to $1,734.06 and palladium rose 0.6% to $1,319.12.
Reporting by Sukanya Mitra in Bengaluru; Editing by Rashmi Aich, Kirsten Donovan and David Goodman
