Gold prices were on track for their biggest weekly decline in six weeks on Friday as escalating tensions between the United States and Iran pushed oil prices higher, raising concerns about inflation and the prospect of higher US interest rates.
Spot gold rose 0.5% to $3,988.20 an ounce by 0313 GMT after touching its lowest level since July 1 earlier in the session. US gold futures for August delivery were little changed at $3,992 an ounce.
Despite the modest rebound, gold has fallen 3.2% this week, marking its steepest weekly decline since early June.
Rising oil prices weigh on gold
Analysts said the surge in oil prices overshadowed recent US inflation data, which had shown signs of easing.
“Even with tamer CPI and PPI figures, the oil price spike this week meant traders simply couldn’t celebrate the cooler inflation numbers,” said Tim Waterer, Chief Market Analyst at KCM Trade.
“Geopolitical risks in the Middle East are still present, with inflation and yield concerns being the dominant forces holding gold back,” he added.
The renewed fighting between the United States and Iran has driven oil prices up by about 12% this week as concerns grow over disrupted supplies through the Strait of Hormuz.
Iran has also reportedly asked the Houthi movement to prepare to shut the Red Sea export route, further increasing fears of supply disruptions.
Higher rate expectations pressure bullion
Higher oil prices have renewed concerns that inflation could accelerate again, increasing the likelihood of further interest rate hikes by the US Federal Reserve.
Gold, which does not pay interest, often loses appeal when borrowing costs rise because investors can earn better returns from interest-bearing assets.
Dallas Federal Reserve President Lorie Logan became the first member of the Federal Reserve’s leadership to publicly support another rate increase.
Federal Reserve Vice Chair Philip Jefferson also indicated he would support a rate hike if inflation fails to improve in the coming months.
According to the CME FedWatch Tool, financial markets are now pricing a 73% chance of a US interest rate increase in December.
Other precious metals decline
Other precious metals also moved lower on Friday.
Spot silver fell 0.5% to $55.22 an ounce, platinum dropped 0.7% to $1,605.62, while palladium slipped 0.4% to $1,244.86.
All three metals were also on course to post weekly losses.
