PRECIOUS-Gold touches over three-week low as stronger dollar, inflation fears weigh

Updates for European morning open

By Sukanya Mitra

Sept 2 (Reuters) - Gold prices fell to an over three-week low on Wednesday, weighed down by a stronger dollar, as renewed Middle East tensions heightened inflation concerns ahead of key U.S. jobs data.

Spot gold XAU= eased 0.1% to $4,323.59 per ounce by 0826 GMT, after hitting its lowest level since August 7 earlier in the session, while U.S. gold futures GCcv1 for December delivery dropped 0.6% to $4,370.40.

"The lingering geopolitical uncertainty pushes oil prices higher, sustaining inflationary risks and pressure on the Fed to raise rates, boosting the dollar and compounding gold's headwinds," said Nikos Tzabouras, a senior market analyst at Jefferies-owned Tradu.com.

"The precious metal is caught in a structural tug-of-war between aggressive Federal Reserve repricing and currency debasement trends, fuelling ongoing volatility," Tzabouras added.

The dollar hit a two-week high on Wednesday as investors turned to the U.S. currency amid growing concerns about the economic impact of the energy shock. USD/

A stronger dollar makes greenback-priced bullion more expensive for buyers overseas.

The U.S. and Iran found themselves back in a war footing after the most significant exchange in weeks, with Washington threatening even more devastating strikes, pushing oil prices to a five-week high on Tuesday. O/R

Meanwhile, Federal Reserve Governor Michael Barr said if inflation does not cool quickly, it will be time for the central bank to raise rates. Last Friday, Fed Chairman Kevin Warsh said the central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%.

Traders are now pricing in a 68% chance of an interest rate hike at the central bank's policy meeting this month, the CME FedWatch Tool showed.

While gold is typically seen as an inflation hedge, higher interest rates tend to diminish the appeal of non-yielding bullion to investors.

Investors are now awaiting the ADP employment report due at 1215 GMT, and the nonfarm payrolls data on Friday.

Among other metals, spot silver XAG= dropped 0.3% to $64.04 per ounce, platinum XPT= slid 0.6% to $1,729.83, and palladium XPD= slipped 0.5% to $1,304.50.

(Reporting by Sukanya Mitra in Bengaluru; Editing by Rashmi Aich)

((sukanya.mitra@thomsonreuters.com;))