Gold pared its losses after falling below $4,000 an ounce on Monday, as escalating tensions in the Middle East, coupled with comments from a U.S. monetary policymaker, increased the likelihood of an interest rate hike to curb inflation. The precious metal rose as much as 0.8% to around $4,020 an ounce, after losing 2.9% on Monday. President Donald Trump reinstated sanctions on Iran and demanded a 20% penalty for other shipments passing through the Strait of Hormuz, while both sides resumed airstrikes. European oil and natural gas prices surged, fueling concerns about tighter monetary policy, which in turn puts pressure on the price of gold, a non-yielding asset.In the United States, Christopher Waller, a member of the Federal Reserve Board of Governors and one of the bank's most dovish officials, said policymakers may need to raise interest rates in the near term if core inflation continues to signal wSwap traders are currently pricing in a probability of more than 40% that the Federal Reserve will raise interest rates at its next meeting in late July, and have fully priced in at least one increase in borrowing costs by the end of the year.idespread price pressures. Inflation data and Warsh's testimony will be under market scrutiny later on Tuesday. Traders will be watching US consumer price data for June, along with Kevin Warsh's first appearance before Congress as Federal Reserve chairman, for clues to the central bank's interest rate outlook.