During Asian trading on Thursday, gold prices declined for a second consecutive session as U.S. inflation data dampened expectations for interest rate cuts, while escalating conflict in the Middle East drove oil prices higher.

After falling 0.3% in the previous session, spot gold dropped by as much as 1%. Although core U.S. inflation showed moderation earlier in the year, concerns over future price pressures have reduced the likelihood of the Federal Reserve cutting rates. Meanwhile, the European Union warned that its inflation could exceed 3% this year.

The ICE U.S. Dollar Index rose 0.3% during Asian trading. A stronger dollar makes commodities priced in the U.S. currency more expensive for investors holding other currencies.

Spot gold fell to a low of $5,125.40 per ounce during the session, a decline of nearly $51.

According to Hebe Chen, an analyst at Vantage Markets, the pullback in gold "appears more like a pause than a full retreat." She noted that "renewed expectations for price pressures have boosted the dollar and pushed back the Fed's near-term easing plans. In a market that can only accommodate one safe-haven asset at a time, gold has been temporarily sidelined."

Nearly two weeks after the outbreak of conflict between the U.S., Israel, and Iran, disruptions to oil production and refining across the Middle East persist. Brent crude rose above $100 per barrel on Thursday as worries over a prolonged conflict overshadowed the largest-ever coordinated release of emergency oil reserves by wealthy nations. As part of the plan, the United States announced it would release 172 million barrels of crude from its strategic petroleum reserve.

Market analyst Jill Disis highlighted that Brent crude returned to above $100 per ounce after Oman evacuated all vessels from a key oil export terminal and two tankers were attacked in Iraqi waters. These events underscore broader risks to energy assets in the Middle East and have overshadowed the International Energy Agency's record oil reserve release plan.

Iran has warned that the world should prepare for oil prices to surge to $200 per barrel and has continued to target ships passing through the Strait of Hormuz.

Rising U.S. gasoline prices could exert upward pressure on inflation, potentially prompting the Federal Reserve to adopt a more hawkish monetary policy stance. Higher interest rates may attract more foreign capital, further strengthening the dollar.

In addition to facing the prospect of higher borrowing costs—which is a headwind for non-yielding assets like gold—the metal also serves as a source of liquidity that investors can use to support other parts of their portfolios when needed.

Since the outbreak of the Iran conflict, the amount of gold held by exchange-traded funds (ETFs) has declined, although inflows were recorded on Tuesday following the largest weekly drop in over two years.

Despite volatile trading since the conflict began on February 28, gold's upward momentum has stalled. However, the metal is still up nearly 20% year-to-date, supported by its role as a safe-haven asset during periods of geopolitical instability.

Hebe Chen remarked, "The safe-haven trade is not over; it is just taking a breather."

As of 12:56 Beijing time, spot gold was trading at $5,141.61 per ounce.