Aug 6 (Reuters) - Gold pared earlier gains to trade steady on Thursday, as oil prices rose following reports of Iran reviewing restrictions on "hostile" vessels in the Strait of Hormuz, reigniting inflation fears and rate hike expectations.
Spot gold was little changed at $4,244.29 per ounce by 2:50 p.m. EDT (1850 GMT), after having hit its highest level since June 18 earlier in the session. The yellow metal climbed over 4% on Wednesday, its largest daily gain since February.
U.S. gold futures settled around 0.1% lower at $4,299.60.
An Iranian parliamentary committee is reviewing a preliminary bill that would bar U.S., Israeli and other "hostile" vessels from transiting the Strait of Hormuz, Iran's semi-official Fars news agency reported, citing a lawmaker.
Oil prices rose by more than $3 a barrel on the news.
Iran's draft bill is "having an impact because of heightened inflation if crude oil prices are going to rally again," said Jim Wyckoff, a market analyst at American Gold Exchange.
Higher energy prices feed into inflation as manufacturers pass costs to consumers, encouraging central banks to adopt a higher-for-longer policy stance to combat price pressures.
The Federal Reserve outlook remains the main driver for gold and Friday's U.S. jobs data will influence what the central bank says on interest rates, said Bob Haberkorn, senior market strategist at StoneX.
Traders are currently pricing in about a 57% chance of a rate hike at the central bank's September meeting, and an 84% chance of a hike in December, according to the CME FedWatch Tool. FEDWATCH/
Higher interest rates raise the opportunity cost of holding non-yielding bullion, making gold less attractive to investors.
"A lot of money that was on the sidelines started coming back into gold yesterday with some technical levels being breached," Haberkorn said.
Bullion was still down around 24% from a record high of $5,594.82/oz hit in late January.
Among other metals, spot silver fell 0.9% to $61.54 per ounce.
Platinum lost 0.6% to $1,724.64, and palladium rose 0.6% to $1,371.48.
Reporting by Sukanya Mitra, Swati Verma and Anjana Anil in Bengaluru; Editing by Leroy Leo, Joyjeet Das and Diti Pujara
