Gold falls as higher oil stokes inflation fears ahead of US midterms

By Sherin Sans

Nov 3 (Reuters) - Gold prices fell on Tuesday, after gaining about 2% in the previous session, as energy-driven inflation worries kept investors on edge ahead of the US midterms elections.

Spot gold slipped 1.1% to $3,904.69 per ounce by 1002 GMT. US gold futures for December delivery dropped 1.4% to $3,914.70.

Oil prices rose more than $1, as an Iranian official said a deal to the end the war was far off, while the United States struck Iran's Qeshm Island, fuelling concerns over risks to energy supplies that have kept energy prices high and bolstered the case for tighter monetary policy. O/R

"Higher oil prices tend to put inflationary pressures up, and with inflationary pressures up, rate expectations tend to drift higher and therefore that's negative for gold. That's what we're observing today," said Nitesh Shah, commodity strategist at WisdomTree.

Higher interest rates increase the opportunity cost of holding non-yielding gold. Traders currently see a 75% chance that the Federal Reserve will raise rates in December, according to CME's FedWatch tool.

In the US, crucial midterm elections get underway later in the day.

"A Democratic sweep would likely prove more problematic for the AI data-centre build-out and the broader tech trade. Any further pressure on the tech complex from increased regulatory scrutiny could spill over into gold as positions continue to be cut to cover losses elsewhere," said Tim Waterer chief market analyst at KCM Trade.

Meanwhile, the World Gold Council cut its forecast for growth in gold investment this year to 200 metric tons from 400 tons previously, citing weaker appetite for bars and coins, although it raised its estimate for central bank purchases.

Among other metals, spot silver slipped 3.4% to $48.93, platinum fell 2.1% to $1,419.07 and palladium dropped 2.9% to $940.75.