Gold prices fell 1% on Thursday as climbing oil prices heightened inflation worries, boosting bets for U.S. rate hikes and lifting Treasury yields and the dollar, which added more pressure on bullion.
Spot gold was down 1% at $4,500.07 per ounce. On Wednesday, bullion rose more than 1% in U.S. trading hours after having hit its lowest level since March 30. U.S. gold futures for June delivery lost 0.7% at $4,502.90.
Oil prices rose over 2% after Reuters reported that Iran's Supreme Leader issued a directive that the country's near-weapons-grade uranium should not be sent abroad.
"Essentially, it's all still about negotiation between Iran and the U.S. and in that context, we have seen a bit of uncertainty if a deal can be reached or not, with that, oil prices are increasingly pressuring gold," said UBS analyst Giovanni Staunovo.
Ayatollah Mojtaba Khamenei's order could further frustrate U.S. President Donald Trump and complicate talks on ending the U.S.-Israeli war on Iran.
The yellow metal has fallen more than 15% since the war started in late February, which has disrupted maritime traffic through the Strait of Hormuz, lifting energy prices and stoking inflation concerns.
The dollar rose, making greenback-priced bullion more expensive for other currency-holders, while the U.S. 10-year Treasury bond yield resumed its climb, increasing the opportunity cost of holding non-yielding bullion.
"Increasing oil prices, which push inflation higher, are putting pressure on central banks to keep rates unchanged or potentially even increase them. This, thus remains a headwind for gold in the near term," Staunovo added.
Despite being an inflation hedge, gold struggles during periods of elevated interest rates.
Traders now see a 58% chance of at least one 25-basis-point interest rate hike by the U.S. Federal Reserve this year, compared with 48% a day earlier, as per CME's FedWatch Tool.