(Bloomberg) — Gold declined on concerns that protracted negotiations between the US and Iran could keep the Strait of Hormuz shut for an indefinite period and further heighten inflation risks.

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Bullion fell as much as 2.7% on Tuesday, dropping well below $4,600 an ounce, before paring some losses after US President Donald Trump said Iran has asked the US to lift a naval blockade of the crucial waterway.

Iran previously signaled it may be willing to accept an interim deal to reopen the Strait in exchange for Washington ending its blockade of Iranian ports, while postponing more complex negotiations over the country’s nuclear program. It is insisting on keeping some control over shipping through the strait, which Washington is unlikely to accept.

The energy-supply shock caused by the eight-week conflict has added to inflation risks, raising the likelihood that central banks will keep rates steady for longer or even hike them — a headwind for non-yielding bullion. Gold has lost about 13% since the conflict began at the end of February, while crude oil prices have soared on war disruptions.

“If the increase in oil prices continues, market participants could even start pricing in an interest rate hike again, as they did in mid‑March,” analysts at Commerzbank AG wrote in a note Tuesday. “In that case, the gold price could, as it did then, fall back towards USD 4,500 per troy ounce.”

Traders will be keeping tabs on interest-rate decisions in the US, the European Union, the UK and Canada this week. Earlier Tuesday, the Bank of Japan left its benchmark rate unchanged at 0.75%, with a split vote suggesting increased odds of a hike in June.

Spot gold fell 1.8% to $4,595.51 an ounce at 3:18 p.m. in New York. Silver slid 3.2% to $73.13 an ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.2%.

–With assistance from Preeti Soni and Robin Paxton.

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