Gold prices reversed course on Thursday, erasing earlier gains as rising U.S. Treasury yields and a firmer dollar pressured prices and concerns grew that the escalating conflict in the Middle East could drive up inflation.
Spot gold fell 1.2% to $5,076.59 per ounce, after rising as much as $5,194.59 earlier. U.S. gold futures for April delivery settled 1.1% lower at $5,078.70.
"The market is looking at higher oil prices and the potential for inflation, while higher Treasury yields usually aren't great for gold," said Bart Melek, global head of commodity strategy at TD Securities.
The U.S.-Israeli campaign against Iran entered its sixth day on Thursday, with residents reporting heavier bombardment, while Tehran vowed to retaliate after a U.S. strike on a ship far from the main conflict zone. The escalation has kept energy-supply worries elevated, supporting oil prices, fuelling inflation concerns and dimming prospects for interest rate cuts.
Gold is often viewed as a hedge against long-term inflation, but tends to perform better when interest rates fall.
The metal, which hit a record $5,594.82 on January 29, briefly climbed above $5,400 on Monday as the start of the U.S.-Israeli air campaign drove safe-haven demand, but later eased as the dollar attracted its own flight-to-safety flows.
The U.S. dollar index (.DXY), opens new tab rose 0.5%, making greenback-priced bullion more expensive for overseas buyers, while U.S. 10-year Treasury yields climbed to a three-week high, raising the opportunity cost of holding non-yielding gold.
However, gold still has supportive fundamentals, Melek said, as "we're going to at some point start seeing evidence of significantly higher deficit in the U.S. ... and a massive amount of uncertainty."
U.S. data on Thursday showed initial jobless claims unchanged last week, while layoffs dropped sharply in February. The Federal Reserve said on Wednesday that economic activity rose slightly, prices continued to increase and employment levels were stable in recent weeks.
Markets expect the Fed to hold rates steady at its March 18 policy meeting, with investors watching Friday's U.S. February jobs report for further clues.
Spot silver fell 1.8% to $81.91 per ounce. Platinum was down 1.1% to $2,125.10, while palladium lost 2.4% to $1,634.15.