Gold declines below $4,500 as Iran tensions stoke inflation fears and bolster Fed hike bets

• Gold price edges lower to near $4,485 in Tuesday’s early Asian session. 

• Iran stops negotiations with US, vows to ‘completely’ block Strait of Hormuz. 

• Traders await the US May employment data on Friday for fresh impetus. 

Gold price (XAU/USD) declines to around $4,485 during the early Asian session on Tuesday. The precious metal loses ground as renewed tensions in the Middle East continue to fuel concerns over inflation and expectations of elevated interest rates.

CNBC reported on Monday that Iranian negotiators will stop exchanging messages with the United States (US) through intermediaries, and Iran will move to fully close the Strait of Hormuz, in retaliation for ongoing ceasefire violations. Meanwhile, US President Donald Trump shrugged off the possible collapse of peace negotiations with Iran, saying, “I don’t care if they’re over, honestly.”

“The optimism surrounding negotiations between the US and Iran aimed at ending the standoff in the Strait of Hormuz faded over the weekend,” said Ricardo Evangelista, ActivTrades analyst. “As a result, energy prices rebounded, reviving inflation concerns and reinforcing hawkish Federal Reserve expectations,” he added.

Financial markets are now pricing in a Federal Reserve (Fed) rate hike as early as this year, with a 39% probability of a quarter-point increase in December, according to the CME FedWatch tool.

The US employment data for May will be in the spotlight later on Friday. This report could offer some hints about the Fed’s monetary policy path and the implications for gold prices. Any signs of weakening in the US labour market could weigh on the US Dollar (USD) and support the USD-denominated commodity price in the near term.