(Bloomberg) -- Gold pared most of its early gains as traders weighed the prospect of less monetary easing due to higher energy prices stemming from the escalating conflict in the Middle East.

Bullion slipped as much as 0.3% before trading about 0.2% higher. Earlier it rose to a one-month high on haven demand. The conflict spread over the weekend after the US and Israel attacked Iran — killing the Islamic Republic’s supreme leader, Ayatollah Ali Khamenei — and Tehran responded with waves of missiles at targets in multiple countries. Silver and palladium fell.

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The risk-off mood on Monday sent global stocks lower, and US Treasuries also fell on concerns over inflationary pressure from higher oil prices and rising government spending. Oil surged the most in four years.

Gold’s gains were capped as traders started to factor in higher inflation risks, according to Frank Monkam, head of cross-asset macro strategy and trading at Buffalo Bayou Commodities. That may force the Federal Reserve and its global peers to hike interest rates to contain rising price pressures. In fact, swap traders have already scaled back wagers on the scope of rate cuts. Higher rates are typically negative for non-yielding bullion.

Still wider geopolitical tensions and US President Donald Trump’s upheaval of international relations and trade have underpinned a long-running rally for gold, which has also been supported by elevated central-bank buying and investor fears of inflation and currency debasement.

“Gold is set to benefit from geopolitical instability, less risk appetite and inflation concerns amid skyrocketing energy costs,” analysts at TD Securities wrote in a Sunday note. Speculators, who have been pulling back from the long gold trade in recent weeks, “could see the developments in the Middle East as an opportunity to get back in,” TD said.

Bullion has gained 22% so far this year, despite an abrupt pullback from a record high above $5,595 an ounce at the end of January.

Tehran’s retaliatory strikes include the United Arab Emirates — a critical artery in the global gold trade. The UAE supplies bullion to buyers in China and India and serves as a conduit for shipments from London, the world’s dominant spot trading hub.

The country partially closed its airspace and suspended flights in Dubai in response to the attacks, temporarily halting the flow of metal.

One trader said Monday was spent rushing to reroute consignments that had been scheduled to transit through Dubai en-route to their final destination. Gold is typically transported in the cargo holds of passenger aircraft, of which there are many on the busy London-Dubai route.

While the disruptions are only temporary, a longer-term freeze on flights from UAE could pose a more serious challenge to the availability of metal for traders in India and other markets in Asia. At the outbreak of the pandemic in 2020, shutdowns of flights updended global markets, as traders were unable to quickly fly metal between trading hubs to take advantage of arbitrage opportunities.

Much of the premium associated with ongoing geopolitical tensions is already priced-in for oil, Manish Kabra, head of US equity strategy at Societe Generale SA said on Monday. “Gold remains our most preferred hedge — a disciplined diversifier that tends to extend its performance during oil‑shock.”

Even ahead of the war with Iran, Trump had adopted an increasingly aggressive foreign policy. US troops seized Venezuela’s then-president Nicolás Maduro in January and the administration made threats to annex Greenland. With Washington amassing its biggest military deployment in the Middle East since the Iraq War in 2003, bullion posted its seventh consecutive monthly gain in February — the longest streak since 1973.

Spot gold rose  to $ an ounce as of  in New York. Silver dropped  to $. Palladium fell . The Bloomberg Dollar Spot Index advanced 0.8%.

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