Bullion fell to around $4,050 after hitting a two-month high. The precious metal came under selling pressure as rising oil prices reinforced expectations that the US Federal Reserve (Fed) may raise interest rates again in the near future.
Market sentiment continued to be affected by the conflict in the Middle East. The Iran-backed Houthi group claimed to have attacked two Saudi oil tankers in the Red Sea for allegedly violating maritime sanctions imposed by the group.
At the same time, the United States reportedly continued its 13th consecutive night of strikes on Iran.
US President Donald Trump also warned that Washington would launch a larger military response if the Houthis continued their attacks.
He also said he was considering a large-scale military operation against Iran, raising concerns about the risk of a wider conflict in the region.
The rise in oil prices due to geopolitical tensions has raised concerns about inflation. This has led the market to expect the Fed to maintain tighter monetary policy, reducing the appeal of gold, which does not offer interest returns.
According to the CME FedWatch Tool, the market is now placing a 35.8% probability of the Fed raising interest rates at this month's meeting, while the probability of at least a 25 basis point hike in September has risen to 82.1%.
Geopolitical developments and Fed policy expectations are expected to continue to be the main drivers of gold price movements in the near term.
