Gold slid to a two-week low on Tuesday as the U.S.-Iran conflict in the Gulf sent oil prices soaring and fuelled inflation fears, with hawkish remarks from Federal Reserve Governor Christopher Waller further reinforcing bets on higher U.S. interest rates.
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Spot gold XAU= was down 0.2% at $3,993.83 per ounce by 0110 GMT, having shed about 3% in the previous session in its biggest daily percentage decline in more than a month. U.S. gold futures GCcv1 for August delivery were steady at $4,000.70.
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The U.S. military carried out a third consecutive night of strikes against Iran on Monday and two tankers came under fire in the Strait of Hormuz, after U.S. President Donald Trump said Washington was reinstating its blockade of Iranian shipping in the Gulf.
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Oil futures hit their highest point since mid-June, having surged about 9% in the previous session, while U.S. Treasury yields and the dollar climbed as the conflict between the United States and Iran re-ignited over the weekend.
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Investors will closely watch June U.S. CPI data due later in the day for fresh clues on inflation and the Fed's policy path, with PPI data and Fed Chair Kevin Warsh's first semiannual testimony before Congress this week also in focus.
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The U.S. central bank may need to raise interest rates "in the near term" if coming data show inflation continuing well above the 2% target, Waller said on Monday, in remarks that characterized monetary policy as being at a "crossroads."
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Traders have ramped up bets on a September U.S. interest rate hike, with CME Group's FedWatch Tool showing the probability rising to around 78% from 57% a week ago.
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