Spot gold fell 0.6% to $4,711.27 an ounce ($151.5 a gram). U.S. gold futures for June delivery fell 0.5% to $4,727.70 an ounce ($152 a gram).
Brent crude oil prices have held above $100 a barrel after a larger-than-expected draw in U.S. gasoline inventories and a lack of progress in peace talks.
“Brent’s return to triple digits keeps inflation risks in the spotlight and is weighing on gold today,” said Tim Waterer, chief market analyst at KCM Trade.
Rising oil prices could fuel inflation as transportation and manufacturing costs rise, raising the likelihood of further rate hikes. While gold is traditionally seen as a hedge against inflation, high interest rates are making income assets more attractive, dampening interest in the precious metal.
Iran seized two ships in the Strait of Hormuz on Wednesday, tightening its grip on the strategic waterway, and prospects for resuming talks remain dim.
“Investors fear that a ‘ceasefire plus blockade’ scenario could drag on for months, turning a short-term price spike into a long-term inflationary factor that would weigh on gold from a yield perspective,” Waterer added.
Meanwhile, a Reuters poll of economists showed the U.S. Federal Reserve is likely to hold off on cutting rates for at least six months as energy shocks amid the war stoke inflation again.
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