PRECIOUS-Gold drops as Hormuz blockade lifts dollar, dents Fed rate cut bets

* Gold drops to lowest since April 7

* Oil prices jump back above $100 a barrel

* US prepares for blockade of Hormuz; Iran warns of harsh response (Updates prices as of 0735 GMT)

By Noel John

April 13 (Reuters) - Gold hit a near one-week low on Monday as a stronger dollar and oil's surge above $100 after the U.S. moved to blockade Iranian ports fuelled inflation concerns, prompting traders to scale back expectations for Federal Reserve rate cuts this year.

Spot gold was down 0.4% at $4,730.75 per ounce, as of 0735 GMT, after hitting its lowest since April 7 earlier in the day at $4,643. U.S. gold futures for June delivery fell 0.7% to $4,753.30.

The dollar strengthened 0.3% as the U.S. Navy prepared a blockade of the Strait of Hormuz that could restrict Iranian oil shipments after peace talks between the U.S. and Iran broke down.

Iran's Revolutionary Guards responded by warning that military vessels approaching the strait will be considered a ceasefire breach and dealt with harshly and decisively.

"Ceasefire optimism has unwound following the failure of the peace talks, and the resulting push higher by the dollar and oil prices has put gold on the back foot again," said Tim Waterer, chief market analyst at KCM Trade.

Spot gold has fallen more than 11% since the U.S.-Israeli war on Iran began in late February. While inflation and geopolitical risks typically boost gold's appeal as a safe haven, elevated interest rates weigh on the non-yielding metal.

A stronger dollar also makes greenback-priced bullion more expensive for holders of other currencies.

"As soon as oil prices push back above $100, attention quickly turns to potential central bank rate hikes to curb inflation, and it is this interest rate outlook that is undermining gold's performance," Waterer said.

Traders now see little chance of a U.S. rate cut this year, as higher energy prices threaten to feed into broader inflation and limit the scope for monetary easing.

Investors had priced in two Fed rate cuts for 2026 before the start of the war.

Among other metals, spot silver fell 1.7% to $74.56 per ounce, platinum was steady at $2,046.05, while palladium gained 0.8% to $1,533.27. (Reporting by Noel John in Bengaluru; Editing by Rashmi Aich, Subhranshu Sahu and Sonia Cheema)