Gold prices edged lower during Wednesday's Asian session as renewed military tensions between the United States and Iran fuelled another surge in oil prices, while traders digested softer-than-expected U.S. inflation figures, and an expected hawkish tone from Fed Chair Kevin Warsh in his congressional testimony.
By 4:15 pm AEST (6:15 am GMT), spot gold was down 0.6% at US$4,025.67 an ounce.
The precious metal came under pressure after President Donald Trump announced the reimposition of a naval blockade on all Iranian ports and warned that the United States could target power plants and bridges next week unless Tehran returns to negotiations.
Trump also said Washington held discussions with Iranian officials on Tuesday, urging Tehran to reach an agreement.
Meanwhile, U.S. Central Command (CENTCOM) confirmed it had carried out strikes on dozens of military sites near the Strait of Hormuz, further escalating the conflict.
The latest developments have driven oil prices sharply higher, with U.S. benchmark West Texas Intermediate crude trading near monthly highs above US$80.50 a barrel.
Markets remain concerned that rising energy prices could reignite inflationary pressures and reinforce the Federal Reserve's outlook for two additional interest rate increases this year.
That expectation has continued to weigh on non-yielding gold, offsetting support from a weaker U.S. dollar after June's softer-than-expected Consumer Price Index (CPI) report.
Investor sentiment was also tempered by Federal Reserve Chair Kevin Warsh's congressional testimony, in which he reaffirmed the central bank's commitment to restoring price stability despite recent progress on inflation.
Attention now turns to the release of the U.S. Producer Price Index (PPI) and a series of speeches from Federal Reserve officials, including Warsh, who is scheduled to present the Fed's Semi-annual Monetary Policy Report before the Senate Committee on Banking, Housing and Urban Affairs.
A softer-than-expected factory-gate inflation reading could further reduce expectations for near-term rate hikes and provide fresh support for gold prices.
