Gold prices fell below key levels in Asian trade on Wednesday as markets grew more uncertain over interest rates and inflation before the conclusion of a closely watched Federal Reserve meeting later in the day.

While gold had initially risen back above $5,000 an ounce level, it reversed course as continued hostilities in the U.S.-Israel war on Iran left markets largely on edge over the conflict’s inflationary effects. 

Spot gold fell 0.4% to $4,987.09 by 01:18 ET (05:18 GMT), while gold futures fell 0.4% to $4,990.44/oz. 

Other precious metals also retreated, with spot silver down 0.3% at $79.0345/oz, while spot platinum fell 0.6% to $2,116.40/oz. 

Gold sees limited haven demand as Iran war rages on

A worsening conflict in the Middle East offered limited support to gold, which struggled to remain above $5,000/oz this week even as the U.S. and Israel continued to attack Iran, drawing a wave of retaliatory attacks from the Islamic republic. 

The war showed few signs of abating after an Israeli air strike killed Iran security chief Ali Larijani earlier this week. Oil prices remained perched above $100 a barrel, amid continued concerns over supply disruptions. 

Markets largely feared the inflationary impact of the conflict, especially as oil prices shot up to near four-year highs after supply through a key shipping lane– the Strait of Hormuz– was disrupted. 

Energy-fueled inflation could elicit a more hawkish stance from major central banks, with the Reserve Bank of Australia raising interest rates on Tuesday and warning of inflationary pressures from the conflict. 

Fed, central banks awaited for more rate cues

The Fed, along with a host of other major central banks, are now set to meet in the coming days. The Fed will decide on rates later on Wednesday, followed by the Bank of Japan, the European Central Bank, the Swiss National Bank, and the Bank of England later this week. 

The Fed is widely expected to leave rates unchanged, with focus squarely on whether the central bank expects an inflationary bump from the Iran conflict, and whether it could affect the outlook for interest rates. 

Markets were seen largely pricing out expectations for any interest rate cuts by the Fed until at least September, CME Fedwatch showed.

The prospect of higher for longer rates bodes poorly for gold, given that it increases the opportunity cost of investing in non-yielding assets. 

While gold still retained some of its annual gains, it was nursing a sharp fall from a near $5,600/oz record high hit in late-January.