Spot gold fell nearly 1% to $4,440.27 per ounce. U.S. gold futures slipped 1.1% to $4,468.60.
Gulf hostilities flared again as Iranian attacks on Kuwait damaged its airport and injured dozens while the U.S. military carried out strikes near the Strait of Hormuz, with diplomacy to halt the war showing little sign of progress.
“Gold’s activity is largely driven by heightened tensions between the United States and Iran,” said David Meger, director of metals trading at High Ridge Futures.
“As the conflict intensifies, rising energy prices are expected to lift inflation expectations. This could lead to higher interest rates, further strengthening the dollar and adding additional downward pressure on gold,” he added.
Bullion is often seen as a safeguard against inflation, but it tends to become less attractive as a non-yielding asset in a high interest-rate environment.
Oil prices rose, while the U.S. dollar index was up for a third straight session. A stronger U.S. currency makes dollar-priced metals more expensive for holders of other currencies.
Federal Reserve Bank of New York President John Williams reiterated that he does not believe the U.S. central bank needs to change the setting of short-term interest rates. But Cleveland Fed President Beth Hammack said on Tuesday the Fed may need to raise rates soon should already-high inflation pressures continue to mount.
Focus is also on the U.S. nonfarm payrolls data for May due on Friday to gauge the Fed’s monetary policy path.
The ADP’s national employment report showed that U.S. private payrolls increased more than expected in May.