By Sukanya Mitra
Oct 20 (Reuters) - Gold eased on Tuesday as firmer oil prices heightened inflation concerns, while investors awaited next week's Federal Reserve policy meeting for signals on the US interest rate outlook.
Spot gold slid 0.3% to $4,128.92 per ounce by 0621 GMT, while US gold futures for December delivery dropped 0.3% to $4,148.50.
"Some of the geopolitical issues that have flared up in the Middle East, are putting upward pressure on oil and as a result that has kind of weighed on gold
to kick off the week," said Kyle Rodda, senior financial market analyst at Capital.com.
Oil prices advanced, with Brent hovering around a five-month high as traders priced in a geopolitical risk premium after Yemen's Iran-aligned Houthis said on Monday they carried out several attacks against Saudi energy, airport and military targets. [O/R]
Higher energy prices often raise expectations that the Fed will keep interest rates higher for longer to contain inflation.
While gold is typically seen as an inflation hedge, higher interest rates tend to diminish its appeal by increasing the opportunity cost of holding the metal.
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, but traders still see a 92% chance of a hike in December, according to CME's FedWatch Tool.
"The interesting dynamic is that there's going to be a big move, no matter what the Fed does, and the initial reaction... might be supportive of gold if they keep interest rates unchanged," Rodda said.
Elsewhere, Bank of Japan Governor Kazuo Ueda said underlying inflation is "quite close" to the central bank's 2% target, with strong global AI demand adding to inflationary pressure from a tight job market, signalling scope for further rate increases.
Among other metals, spot silver rose 0.5% to $57.38 per ounce, platinum gained 0.4% to $1,647.05 and palladium fell 0.5% to $1,114.50.
(Reporting by Sukanya Mitra in Bengaluru; Editing by Subhranshu Sahu)
