Gold prices fell on Thursday, hovering near their lowest level in a week, following an escalation of tensions between the United States and Iran. This has led to a rise in oil prices and increased concerns about inflation and the possibility of interest rates remaining high for a longer period.
As of 03:43 GMT, spot gold fell 0.4% to $4060.46 per ounce after dropping to its lowest level since early July on Wednesday.
U.S. gold futures for August delivery fell 0.3% to $4069.80.
On Wednesday, the U.S. military announced new strikes on Iran to keep the Strait of Hormuz open to maritime traffic, prompting Iran to attack Kuwait and Bahrain in the latest escalation that threatens to derail efforts to end the war.
Oil prices continued their gains on Thursday.
Kelvin Wang, senior market analyst at OANDA, stated: "The catalyst for this downward trend in gold is the reassessment of the likelihood of another U.S. interest rate hike in the first quarter of next year."
He added: "After the exchange of strikes yesterday, the temporary ceasefire agreement between the U.S. and Iran is currently fragile, so conditions may become volatile once again."
According to CME Group's FedWatch tool, markets see a 68% chance of a U.S. interest rate hike in September and an 87% probability of a hike in January 2027.
While gold is seen as a hedge against inflation, high-interest rates typically have a negative impact on the non-yielding metal.
Among other precious metals, spot silver fell 0.9% to $57.77 per ounce, while platinum rose 0.8% to $1591.13, and palladium increased by 0.8% to $1223.95.