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Gold drops nearly 2%, as Middle East threats support the dollar and keep inflation concerns in focus

Gold prices fell by?nearly?2% on Monday, as increased tensions between the U.S. and Iran boosted dollar values and reinforced inflation fears that kept expectations for higher interest rates alive.

By 11:26 am, spot gold had fallen 1.9% to $4,526.88 an ounce. ET (1526 GMT). U.S. Gold Futures dropped 2.3% to $4,37.90.

Bart Melek is the global head of commodity strategies at TD Securities.

Authorities in the emirate reported that a fire had broken out at the Fujairah Oil Industry Zone following what they called a "drone attack" from Iran. The U.S. Military said that two guided-missile destroyers from the U.S. Navy had entered the Gulf to break the Iranian blockade.

Brent prices increased by more than 5%. The dollar price of metals increases when the U.S. dollar is stronger.

The escalating energy prices have also heightened inflation fears and boosted bets on central banks keeping interest rates high for longer.

Barclays has joined the growing list of brokerages that have bet against any policy easing by the U.S. Federal Reserve in this year. The Fed's most divided decision in 1992 was to leave rates unchanged last week. This was due to deepening fears about rising energy prices.

This week, key?data include the ADP Employment Report and the April Payrolls Report. Gold is a good hedge against inflation and geopolitical unrest, but it loses its appeal when rates are high because the metal offers no return.

I see a strong level of support for gold around $4,200. I think that there will be broader issues later in the year which could support prices. Melek stated that traders may be pushed to sell positions due to uncertainty and rate hikes.

Spot silver dropped 2.9% to $73.12, while platinum fell 2.1% to $1.947.05 and palladium lost 3.5% to 1,471.50.

(source: Reuters)