Gold eases as oil-driven inflation worries weigh

By Anushree Mukherjee

Oct 20 (Reuters) - Gold eased on Tuesday as firmer oil prices fuelled inflation concerns, while investors awaited next week's Federal Reserve meeting for further direction on U.S. interest rates.

Spot gold fell 0.51% to $4,118.76 per ounce by 0859 am EDT (1259 GMT). U.S. gold futures for December delivery dropped 0.55% to $4,137.20 per ounce.

"Oil is over $100, so I think basically the story this morning is just a stronger, higher-priced oil is putting pressure on precious metals," said Bob Haberkorn, senior market strategist at StoneX.

Oil prices advanced on Tuesday, with Brent hovering around a five-month high as traders priced in geopolitical risks from Houthi attacks on Saudi infrastructure and reports of vessel attacks in the Gulf. O/R

Gold is still down around 26.4% from its record high of $5,594.82 in January and roughly 22% from levels at the start of the Iran war, when concerns over energy inflation reinforced bets on interest rate hikes.

The Fed raised interest rates by a quarter point in September, its first hike this year.

While recent comments from Fed officials signalling little urgency for further policy tightening have tempered expectations of a rate hike at the central bank's October 27-28 policy meeting, traders see a 92% chance of a hike in December, according to CME's FedWatch Tool.

Gold is traditionally seen as an inflation hedge, but it loses its appeal as a non-yielding asset in a high-interest-rate environment.

Investors are also watching next week's U.S. Personal Consumption Expenditures (PCE) data, the Federal Reserve's preferred inflation gauge, for clues on whether inflation pressures remain persistent and how that could shape the rate outlook.

Elsewhere in Japan, central bank Governor Kazuo Ueda said underlying inflation was "quite close" to the 2% target, signalling scope for further rate hikes.

Among other metals, spot silver was steady at $57.08 per ounce, platinum fell 0.29% lower to $1,635.48 per ounce and palladium dropped 1.54% to $1,102.45 per ounce.