Spot gold fell 1.3 per cent to $4,036.19 per ounce on Monday, heading for a fourth consecutive monthly decline of more than 10 per cent, as a fresh exchange of military strikes between the United States and Iran in the Gulf pushed crude oil prices higher and cemented expectations of further US interest-rate rises. The decline extended a 1.7 per cent weekly loss, with the non-yielding metal caught between inflation fears and the prospect of tighter monetary policy.

Iran launched missiles and drones at US military sites in Kuwait and Bahrain in the early hours of Sunday, shortly after President Donald Trump threatened to eliminate the Iranian leadership if it did not adhere to an agreement to end their war. Although officials in Washington and Tehran later confirmed a halt to the latest hostilities and a resumption of talks over the Strait of Hormuz, oil prices rose on Monday, reflecting the fragility of the interim peace deal and the risk to energy shipments through the strategic waterway. Higher crude costs feed directly into inflation, which in turn strengthens the case for central banks to keep rates elevated.

Traders now price in three Federal Reserve rate increases this year, with a December move seen as the most likely, according to the CME FedWatch tool. US inflation accelerated above 4 per cent in May for the first time in three years, data showed last week, partly driven by energy prices linked to the Middle East conflict. Analysts in London cautioned that any renewed flare-up in the Gulf could revive inflation concerns and reinforce hawkish expectations, creating conditions for a sustained break below $4,000 an ounce if upcoming US payrolls data proves stronger than forecast. In physical markets, Indian demand picked up as the price correction attracted buyers, while Chinese demand remained subdued. Among other precious metals, spot silver fell 2.4 per cent, platinum lost 1.4 per cent, and palladium edged higher.

The next signposts for the market are the ADP employment report and the US nonfarm payrolls figures, both due later this week, which will offer further clues on the Federal Reserve’s policy stance. The US and Iran are scheduled to meet in Doha on Tuesday to address their dispute over the Strait of Hormuz, a chokepoint for global energy flows. The outcome of those talks and the labour-market data are likely to set the near-term direction for bullion.