(Reuters) - Gold prices rebounded on Thursday from a one-month low hit the day before, though gains were capped as elevated oil prices kept fears alive of inflation and higher-for-longer interest rates.
Spot gold was up 0.3% at $4,553.69 per ounce, as of 0417 GMT, after falling to its lowest level since March 31 in the previous session. U.S. gold futures for June delivery rose 0.1% to $4,565.10.
"Gold is representing a value proposition for traders at current levels. So, dip buying is playing a part in gold's recovery efforts today," said Tim Waterer, chief market analyst at KCM Trade.
Although gold is trying to stage a modest recovery from oversold levels, strong oil prices and fresh inflation risks they carry are keeping a lid on its near-term upside, Waterer said.
Brent crude rose above $124 a barrel on a report the U.S. is considering potential military action against Iran to break the deadlock in negotiations to end the war, increasing concerns of more supply disruptions to already curtailed Middle East exports.
Elevated oil prices add to inflation risks, increasing the likelihood of higher interest rates. While gold is traditionally seen as a hedge against inflation, high interest rates weigh on its appeal as a non-yielding asset.
The Federal Reserve held interest rates steady on Wednesday, but in its most divided decision since 1992 noted rising concerns about inflation in a policy statement that drew three dissents from officials who no longer feel the U.S. central bank should communicate a bias towards lowering borrowing costs.
Traders are now pricing out Fed rate cuts entirely for this year, with markets now seeing a 30% chance of a hike by March 2027, sharply up from roughly 5% a day prior.
Meanwhile, U.S. President Donald Trump discussed how to mitigate the impact of a possible months-long U.S. blockade of Iran's ports with oil companies, a White House official said on Wednesday, as the U.S. president urged Tehran to "get smart soon" and sign a deal.
Spot silver rose 0.7% to $71.98 per ounce, platinum gained 1.8% to $1,912.12, and palladium was up 0.3% at $1,462.72.