Gold prices fell on Thursday, hovering near a one-week low set in the previous session, as renewed U.S.-Iran hostilities lifted oil prices and reignited concerns about inflation and higher-for-longer interest rates.

Spot gold fell 0.4% to $4,060.46 per ounce by ⁠0343 GMT, after dropping to its lowest since July 1 on Wednesday. U.S. gold futures for August delivery were down 0.3% at $4,069.80. The U.S. military said on Wednesday it launched fresh strikes on Iran ‌to keep the Strait of Hormuz open to shipping, triggering Iranian attacks on Kuwait and Bahrain in the latest escalation to derail efforts to ‌end the war.

Oil prices extended gains on Thursday.

"The catalyst ‌that is supporting this trend to the downside for gold is ‌a repricing of a ‌second interest rate hike by the Federal Reserve to come in as early as Q1 next year," said Kelvin Wong, ‌a senior market analyst at OANDA.

"After yesterday's skirmish, that ⁠temporary ceasefire agreement between U.S. and Iran is on shaky ground right now, so things could turn pretty fluid again."

Markets are pricing a 68% chance of ⁠an interest rate ⁠hike in September, and see an 87% chance of an increase in January 2027, the CME FedWatch tool showed. Concern about high inflation also mounted ⁠at the U.S. central bank's meeting last month, as officials followed Fed Chairman Kevin Warsh's lead to a more stripped-down policy statement even amid concerns that price increases were broadening and might require interest rate hikes.

While gold is seen as an inflation hedge, high interest rates ‌tend to weigh on the non-yielding asset. Bank of America said it is reducing its 2026 average gold forecast by 14% to $4,360 an ounce, citing a more hawkish Fed.

Elsewhere, spot silver fell 0.9% to $57.77 per ounce, while platinum rose 0.8% to $1,591.13 and palladium gained 0.8% to $1,223.95.

Gold falls as Middle East hostilities revive inflation woes