Brent Crude Breaches $118/Barrel as Trump Says Strait of Hormuz Will Remain Blockaded Until Iran Accepts Nuclear Deal

Gold prices extended their decline on Wednesday as the indefinite closure of the Strait of Hormuz continued to fuel inflationary risks and the Federal Reserve indicated that the war with Iran is clouding the economic outlook.

Gold prices fell as much as 1.9% to just above $4,500 per ounce, following a cumulative 2.4% decline over the previous two trading sessions. The United States said it would maintain its maritime blockade of Iranian ports in an attempt to cut off Tehran's oil exports and force it back to the negotiating table. U.S. President Donald Trump later said the U.S. was holding talks with Iran by telephone.

U.S. Treasuries fell as the Federal Reserve left interest rates unchanged but showed a split vote. Fed officials adjusted the language of their statement, saying "developments in the Middle East are contributing to heightened uncertainty about the economic outlook." Their previous policy statement had said the impact of the conflict on the economy was uncertain.

Traders are also watching interest rate decisions in the Eurozone and the United Kingdom. On Tuesday, the Bank of Japan kept its benchmark interest rate unchanged at 0.75%, with a split vote indicating a higher likelihood of a rate hike in June.

"A bout of technical selling emerged after the price broke below the recent support around $4,650 an ounce," said Ole Hansen, Head of Commodity Strategy at Saxo Bank, in a report. "The market's focus remains on diplomatic efforts, and the reopening of the Strait of Hormuz followed by lower oil prices would be the biggest catalyst for upside in the short term."

As of 3:06 p.m. New York time, spot gold was down 1.2% at 4,540.11perounce.Silverfell2.04,540.11perounce.Silverfell2.071.63 per ounce, while platinum and palladium also declined. The Bloomberg Dollar Spot Index, which measures the dollar's movements, rose 0.4%.