Gold rebounds from five-week low but inflation fears cap gains

Gold prices edged higher ‌on Tuesday from a five-week low hit in the previous session, although gains were limited as elevated crude oil prices kept inflation fears alive and clouded the U.S. interest rate outlook.

Spot gold rose ​0.3% to $4,533.40 per ounce by 0417 GMT, after a more than 2% ​drop on Monday. U.S. gold futures for June delivery inched 0.2% higher ⁠to $4,542.50.

"Prices seem to be digesting a bit after the return of the 'war trade' ​across markets sent gold lower Monday," said Ilya Spivak, head of global macro at Tastylive.

However, ​gains were capped as Treasury "yields and the dollar pushed higher as a rebound in crude oil stoked inflation fears. That weighed against non-interest-bearing and anti-fiat gold," Spivak said.

The dollar rose and Brent crude ​hovered above $113 a barrel as the U.S. and Iran continued to work towards ​a truce while trading blows over the Strait of Hormuz.

The U.S. military said on Monday it destroyed six ‌Iranian ⁠small boats and intercepted Iranian cruise missiles and drones as Tehran sought to thwart a new U.S. naval effort to open shipping through the Strait of Hormuz.

A stronger U.S. currency makes dollar-priced metals more expensive for holders of other currencies.

Meanwhile, higher crude oil ​prices can stoke ​inflation, increasing the likelihood ⁠of higher interest rates. While gold is considered an inflation hedge, high interest rates make yield-bearing assets more attractive, weighing on ​its appeal.

Traders have largely priced out U.S. interest rate cuts for ​this year, ⁠with markets now seeing a 37% chance of a hike by March 2027, compared with 27% of a reduction a week earlier.

Investors now await a slew of key U.S. ⁠data this ​week, including job openings, the ADP employment report, ​and the April payrolls report.

Spot silver was steady at $72.73 per ounce, platinum gained 1% to $1,964, and palladium was ​up 0.8% at $1,492.27.