Gold retreats as investors focus on inflation and interest rate expectations

Gold prices fell on Wednesday after rising more than 2 percent in the previous session, as oil price surges sparked inflation concerns and added uncertainty to US interest rate expectations, weighing on gold, which yields no return.

Spot gold fell 0.5 percent to $4,035.67 per ounce by 03:00 GMT. US August gold futures dropped 0.7 percent to $4,042.20.

Gold had jumped more than 2 percent to $4,100.49 per ounce on Tuesday, recovering from a two-week low after data showed US consumer price inflation slowed more than expected in June, driven by lower energy prices.

Oil prices extended gains for a third consecutive session after US President Donald Trump reimposed a naval blockade on all Iranian ports and threatened to target power plants and bridges next week unless Tehran resumes negotiations, marking the latest US escalation in the conflict.

Kelvin Wong, a market analyst at OANDA, said, “I think the market has now moved past the consumer price index data, which is somewhat of a lagging indicator... Trump continues to impose a blockade on ships leaving the Strait of Hormuz, causing oil prices to rise and putting pressure on gold.”

Gold is typically viewed as a hedge against inflation, but it loses its appeal when interest rates rise, given that it generates no yield.

Among other precious metals, spot silver fell 0.3 percent to $58.48 per ounce, platinum rose 0.2 percent to $1,635.56, and palladium increased 0.2 percent to $1,307.11.