Gold prices fell to a two-month low on Wednesday, pressured by expectations of tighter monetary policy to fend off rising inflation, with no clear end in sight to the US-backed war with Iran.
Spot gold was down 1.3% at $4,447.71 per ounce as of 2:08pm EDT (1808 GMT), after falling to its lowest level since March 27 earlier in the session. US gold futures for June delivery settled 1.2% lower at $4,448.40.
"The biggest influence continues to be the Middle East. There was some lingering optimism, but as this continues to drag out, that optimism wanes," said Peter Grant, vice president and senior metals strategist at Zaner Metals, adding that the ongoing conflict was heightening inflation concerns.
Bullion has been under pressure since the start of the U.S.-Israeli war with Iran. The effective closure of the Strait of Hormuz has prompted a surge in Brent crude prices, fanning inflation woes and propelling expectations of rate hikes.
Tehran will restore shipping through the strait to pre-war levels within a month in a framework deal with the US that also includes the withdrawal of US forces from Iran's vicinity, Iranian state television reported on Wednesday. Gold prices briefly pared some losses after this report.
However, the market still sees energy-driven inflation prompting the US Federal Reserve to hike its benchmark overnight interest rate by 25 basis points by the end of this year. Despite being an inflation hedge, non-yielding gold struggles in high rate environments.
Separately, Minneapolis Fed President Neel Kashkari said the US central bank must focus on containing inflationary risks that appear to be building, though it was "far too soon" to predict when it could change its current policy rate.
Investors await the release on Thursday of US Personal Consumption Expenditures data for clues on the monetary policy path.
Spot silver fell 3.2% to $74.46 per ounce.
"While a rally in gold could once again boost silver above $100/oz in the coming months, we do not see silver outpacing on a sustained basis due to easing fundamental demand," Bank of America wrote in a note on Tuesday.
Platinum slid 2.1% to $1,916.90 and palladium was up 0.1% at $1,386.47.
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