Elsewhere, spot silver XAG= gained 1.2% to $56.55 per ounce, platinum XPT= was up 0.1% at $1,592.86, and palladium XPD= rose 0.9% to $1,258.83.
Iran conflict, Fed comments and oil prices weigh on bullion
Iran's Revolutionary Guards said they had struck U.S. military assets across the Middle East after another night of U.S. bombardment of Iranian cities, while Yemen's Iran-aligned Houthis declared a naval blockade against Saudi Arabia.
Brent crude oil prices were up, after touching a more than one-month high, stoking inflation fears and adding to bets of higher-for-longer interest rates. While gold is typically seen as an inflation hedge, high interest rates tend to diminish the appeal of the non-yielding asset.
"Higher energy prices remain in focus as a re-escalation in the Middle East tensions add to concerns that last week's cooler than expected inflationary data may not be enough to deter the Fed from raising interest rates later this year," said David Meger, director of metals trading at High Ridge Futures.
Cleveland Fed President Beth Hammack added her voice to a growing chorus of policymakers arguing interest rates may need to rise to beat back persistent inflation, setting up a charged debate at the Fed's next meeting and the possibility of dissents at Kevin Warsh's second meeting as the central bank's chairman.
Traders now see an 83% chance of a U.S. interest rate hike in December, versus 73% last week, according to the CME FedWatch tool. FEDWATCH/
"We expect that the Fed will use balance sheet adjustments and not raise interest rates until much later this year. We believe that the realization of this in a month or two is going to actually add some support to the gold market and pressure the dollar," Meger said.
Gold edges lower as Middle East tensions lift oil and rate-hike bets
Gold edged lower on Monday as developments in the escalating U.S.-Iran conflict lifted energy prices and clouded the outlook for U.S. interest rates.
Spot gold XAU= was down 0.2% at $4,007.91 per ounce, as of 2:50 p.m. EDT (1850 GMT). U.S. gold futures GCcv1 for August delivery settled around 0.1% lower at $4,015.90.
Yields on the benchmark 10-year U.S. Treasury note US10YT=RR gained 0.4%. The U.S. dollar was up 0.2%, making bullion more expensive for overseas buyers.
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