Summary Gold dips as oil stays above $100, raising inflation and interest rate fears; stalled U.S.-Iran talks and prolonged conflict weigh on bullion and other precious metals
(Reuters) - Gold fell in choppy trade on Thursday as elevated oil prices fuelled fears of inflation and prolonged high interest rates, while investors looked for clarity on stalled peace talks between the U.S. and Iran.
Spot gold was down 0.7% at $4,705.09 per ounce, as of 0215 GMT. U.S. gold futures for June delivery fell 0.6% to $4,722.10.
Brent crude oil prices remained above $100 a barrel after larger-than-expected gasoline and distillate stock draws in the United States, and over a lack of progress on the peace talks.
"The sight of Brent oil back at triple digits is keeping inflation worries at the forefront, and is putting gold on the back foot today," said Tim Waterer, chief market analyst at KCM Trade.
Higher crude oil prices can stoke inflation by raising transportation and production costs, increasing the likelihood of higher interest rates.
While gold is considered an inflation hedge, high interest rates make yield-bearing assets more attractive, weighing on bullion's appeal.
Iran seized two ships in the Strait of Hormuz on Wednesday, tightening its grip on the strategic waterway after U.S. President Donald Trump called off attacks with no sign of the peace talks restarting.
Trump maintained the U.S. Navy blockade of Iran's trade by sea, and Iran's parliament speaker and top negotiator Mohammad Baqer Qalibaf said a full ceasefire only made sense if it was lifted.
"Investors are worried that this 'ceasefire-plus-blockade' status quo could drag on for months, turning a short-term spike into a long-term inflationary anchor, which would hurt gold from a yield perspective," said Waterer.
Meanwhile, a Reuters poll of economists showed the U.S. Federal Reserve will likely wait at least six months before cutting interest rates this year as war-driven energy shocks reignite already-elevated inflation.
Traders now see a 23% chance of a 25-basis-point Fed rate cut in December, down from 28% a week ago. Before the war, there were expectations of two reductions for this year.
Spot silver fell 1.4% to $76.64 per ounce, platinum lost 1.3% to $2,048.25, and palladium was down 1% at $1,529.25.
