PRECIOUS-Gold rises on Iran war safe-haven bid; firm dollar limits upside

By Pablo Sinha

March 5 (Reuters) - Gold prices rose on Thursday, lifted by safe-haven demand amid an escalating war in the Middle East, while a stronger dollar and concerns around the U.S. Federal Reserve's monetary policy capped gains.

Spot gold XAU= was up 0.6% at $5,168.43 per ounce, as of 0855 GMT. U.S. gold futures GCcv1 for April delivery were up 0.9% at $5,179.20.

Israel launched a large wave of strikes on Tehran on Thursday, targeting what it said was infrastructure belonging to the Iranian authorities, after Iranian missiles sent millions of Israelis rushing into bomb shelters.

"On the one hand, there may be greater safe-haven demand for gold given the ongoing conflict in the Middle East. On the other hand, the risk of a prolonged period of higher energy prices that takes rate cuts off the table, and adds to the chance of rate hikes, could be capping further gains," said Hamad Hussain, a climate and commodities economist at Capital Economics.

The U.S. dollar rose about 0.3% after briefly retreating from three-month highs, as the fallout from the war roiled global markets and kept sentiment fragile.

Concerns about energy supply continued to drive up oil prices and stoke inflation fears.

Gold is considered a hedge against inflation in the long run, but also tends to thrive when interest rates are lower, as it is a non-yielding asset.

President Donald Trump on Wednesday officially nominated former Federal Reserve Governor Kevin Warsh to be the U.S. central bank's next chair.

U.S. economic activity grew slightly, prices continued to increase and employment levels were stable in recent weeks, the Federal Reserve said on Wednesday in its latest "Beige Book" report.

Markets expect the Fed to keep rates steady at its next policy meeting on March 18, according to CME Group's FedWatch tool.

Investors are looking out for the weekly U.S. jobless claims data, due later today, and the U.S. employment report for February on Friday for further clues on monetary policy this year.

Spot silver XAG= rose 0.5% to $83.80 per ounce. Platinum XPT= gained 1.1% to $2,172.20, while palladium XPD= lost 0.7% to $1,662.07.