Gold prices fell on Monday as fresh military exchanges between the U.S. and Iran dampened ceasefire negotiation hopes, reinforcing inflation fears that have fueled expectations of a Federal Reserve rate hike this year.

Spot gold fell  0.8% to $4,501.54 an ounce by 02:57 ET (06:57 GMT), while U.S. Gold Futures declined 1.3% to $4,532.22.

The precious metal ended the previous week with marginal gains on hopes of a U.S.-Iran ceasefire extension.

The U.S. military said it struck Iranian military sites over the weekend, targeting air-defense and drone-related facilities after Iran allegedly downed a U.S. drone.

Tehran responded by attacking an air base used by U.S. forces, while regional air defenses intercepted missiles and drones.

At the same time, Israel ordered troops deeper into southern Lebanon as fighting with the Iranian-backed Hezbollah group intensified.

While reports last week suggested both sides were discussing an extension of a temporary truce and the reopening of shipping routes through the Strait of Hormuz, key issues remain unresolved, and any final agreement still requires approval from U.S. President Donald Trump.

Crude prices rebounded on Monday after the latest military moves, reinforcing concerns that energy costs could remain high and complicate the Fed’s inflation fight.

Investors have increasingly shifted focus toward the possibility of further U.S. monetary tightening. They had been expecting a cut before the war began.

Higher interest rates tend to weigh on non-yielding assets such as gold.

The US Dollar Index edged up 0.1% in Asian hours, also pressuring the bullion, by making it costlier for buyers using other currencies.

Gold has struggled in recent sessions despite its traditional role as a hedge against geopolitical uncertainty and inflation. The metal fell to a two-month low last week before recovering as ceasefire talks temporarily eased concerns over a broader regional conflict.

Traders are now closely watching speeches from Federal Reserve officials and upcoming U.S. economic data, including labor market indicators, for further clues on the interest-rate outlook. 

Among other precious metals, silver prices edged up 0.5% to $75.69/oz, while platinum rose 1.1% to $1,940.95/oz.

Benchmark Copper Futures on the London Metal Exchange edged up 0.3% to $13,663.33 a ton, while U.S.Copper Futures also gained 0.3% to $6.44 a pound.