PRECIOUS-Gold retreats on strong dollar, tempered rate-cut bets

By Ashitha Shivaprasad

March 3 (Reuters) - Gold prices drifted lower on Tuesday, weighed by a stronger dollar and dimming prospects for rate cuts as inflation concerns intensified amid fears of a potentially prolonged Middle East conflict.

Spot gold XAU= was down 3.6% at $5,137.00 an ounce as of 1907 GMT. Prices hit an over four-week high in the previous session.

U.S. gold futures GCcv1 settled 3.5% lower at $5,123.70.

"The move lower in gold appears to be driven by a flight to liquidity - a flight to cash. We have a strong dollar and bond yields trading higher," said Bob Haberkorn, senior market strategist at RJO Futures.

The U.S. dollar, a competing safe-haven asset, posted sharp gains, making dollar‑priced bullion less affordable for holders of other currencies, while U.S. Treasury yields rose for a second consecutive session. USD/ US/

"However, this dip in prices is likely to be short‑lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices," Haberkorn added.

On the geopolitical front, the Iran conflict entered its fourth day as explosions rocked Tehran and Beirut, while a senior Iranian Revolutionary Guards official said on Monday the Strait of Hormuz had been closed. Crude oil benchmarks jumped over 8% on Tuesday in response. O/R

Damage to energy infrastructure and stalled tanker traffic through Hormuz have lifted the risk of sustained strength in oil, gas and refined products, stoking inflation fears and pushing back rate-cut expectations, leaving gold with little support, said Fawad Razaqzada, market analyst at City Index and FOREX.com. FEDWATCH

Despite being considered a hedge against inflation and turmoil, gold is typically preferred in low-rate environments, as it yields no interest.

Spot gold has gained 19% this year, supported by global turmoil, following a 64% surge in 2025. Meanwhile, silver was up over 16% this year.

Spot silver XAG= fell 6.6% to $83.50 an ounce after climbing to a more than four-week high on Monday.

Elsewhere, platinum XPT= lost 8.4% to $2,108.51 and palladium XPD= shed 5.6% to $1,667.41.