Gold loses shine as rate hike bets foster a stronger dollar

U.S. President Donald Trump warned on Tuesday that he could “annihilate” Iran. Brent futures rose above the $100 a barrel mark but held near a two-week low.

Bullion has adopted an almost inverse relationship to oil prices since the U.S.-Israeli war on Iran broke out in late February, weighed down by fears of inflation and tighter monetary policy from central banks as energy prices rose.

Among other metals, spot silver fell 3.9% to $64.45 per ounce, platinum lost 5% to $1,741.83, and palladium declined 3.7% to $1,259.24.

Fed policymakers struck a hawkish tone this week, with Fed Bank of Chicago President Austan Goolsbee saying the U.S. central bank may need to treat the current energy shock as a source of persistent inflation rather than expect it to dissipate on its own.

Richmond Fed President Tom Barkin and Boston Fed President Susan Collins both voiced support for last week's rate hike given concerns about inflation.

The comments follow those of other Fed officials who have broadened their concerns about inflation.

Although bullion is a traditional inflation hedge, rising interest rates can reduce its appeal to interest-bearing assets.

Traders see a 77% chance of a rate hike in October, and a 95% chance of one in December, according to CME's FedWatch Tool.

Gold prices fell more than 1% to a near one-week low on Wednesday as hawkish signals from Federal Reserve policymakers bolstered rate hike expectations and powered the U.S. dollar to two-month highs, weighing on non-yielding bullion.