PRECIOUS-Gold slides over 3% as Middle East tensions stoke inflation fears

March 23 (Reuters) - Gold prices slipped more than 3% on Monday, extending their drop to a roughly four-month low, as an escalating Middle East conflict stoked inflation concerns and expectations of higher global interest rates.

FUNDAMENTALS

Spot gold XAU= was down 3.3% at $4,340.09 per ounce, as of 0100 GMT, extending losses for a ninth consecutive session. The metal, which fell on Monday to its lowest level since January 2, lost more than 10% last week.

U.S. gold futures GCcv1 for April delivery fell 5% to $4,347.

Escalating the three-week-old war, Iran said on Sunday it would strike the energy and water systems of its Gulf neighbours in retaliation if U.S. President Donald Trump follows through with a threat delivered a day earlier to hit Iran's electricity grid in 48 hours.

Iran's Revolutionary Guards said if Iranian power plants are attacked, the Strait of Hormuz will be completely closed and will not be opened until the destroyed power plants are rebuilt.

Oil prices stayed above $110 a barrel, as investors weighed U.S. and Iranian threats to target energy facilities that could escalate the war against the release of millions of barrels of Iranian oil at sea to global markets. O/R

The closure of the Strait of Hormuz kept crude elevated, stoking inflation through higher transport and manufacturing costs. While rising inflation typically boosts gold's appeal as a hedge, high interest rates curb demand for the non-yielding asset.

Meanwhile, market pricing for a U.S. Federal Reserve interest rate hike this year has shot up, and is now seen as far more likely than a rate cut, as interest rate futures were pricing around a 27% chance of a rate hike by December, as per the CME FedWatch tool.

Spot silver XAG= lost 3.3% to $65.55 per ounce. Spot platinum XPT= fell 4.4% to $1,838.45 and palladium XPD= was down 0.4% at $1,398.50.