BY COMFORT OGBONNA
Gold prices were on course for their largest weekly decline in six weeks on Friday as escalating tensions between the United States and Iran pushed oil prices sharply higher, fueling concerns that inflation could accelerate again and prompting investors to expect higher U.S. interest rates.
Spot gold rose 0.3% to $3,980.64 per ounce by 0455 GMT after falling earlier in the session to its lowest level since July 1. Meanwhile, U.S. gold futures for August delivery slipped 0.2% to $3,984.10 per ounce.
Despite the modest rebound during Friday’s trading, gold has fallen 3.4% this week, marking its steepest weekly loss since early June. The precious metal has struggled as investors shifted their attention from encouraging U.S. inflation data to rising geopolitical risks and the inflationary impact of soaring energy prices.
The latest pressure on gold comes as fighting between the United States and Iran intensifies, threatening global energy supplies and sending crude oil prices sharply higher. The renewed conflict has increased fears that higher fuel costs could slow progress in reducing inflation, potentially forcing the Federal Reserve to maintain or even tighten monetary policy.
Market analysts say the jump in oil prices has overshadowed the positive impact of softer U.S. inflation reports released earlier this week.
“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.
He added that while geopolitical uncertainty usually supports demand for safe-haven assets such as gold, concerns over rising inflation and higher bond yields have become the dominant factors influencing the precious metal.
“Geopolitical risks in the Middle East are still present, with inflation and yield concerns being the dominant forces holding gold back,” Waterer said.
The conflict between Washington and Tehran has intensified over the past week, significantly weakening the fragile ceasefire that had been reached only a month earlier. Both countries exchanged additional military strikes on Thursday, raising concerns that the confrontation could expand further.
Oil prices have climbed approximately 12% this week, supported by reduced shipments through the Strait of Hormuz, one of the world’s most important energy transportation routes. Iran has also reportedly urged the Houthi movement in Yemen to prepare for possible action that could disrupt shipping through the Red Sea, increasing concerns over additional supply disruptions.
The rise in energy prices has renewed fears that inflation could remain elevated despite recent improvements in consumer and producer price data.
Higher inflation often leads central banks to maintain higher interest rates for longer periods. That creates challenges for gold because the precious metal does not generate interest or dividend income, making it less attractive compared with interest-bearing investments such as government bonds.
Investor expectations for additional monetary tightening increased after recent comments from senior Federal Reserve officials.
Dallas Federal Reserve President Lorie Logan became the first member of the Federal Reserve under Chairman Kevin Warsh to publicly support another interest rate increase, citing ongoing inflation concerns.
Federal Reserve Vice Chair Philip Jefferson also indicated he would be willing to support additional rate hikes if inflation fails to show further improvement in the near future.
According to market pricing, traders now see a 73% probability of a Federal Reserve interest rate increase in December, reflecting growing expectations that policymakers may need to keep borrowing costs elevated to contain inflation.
The stronger outlook for interest rates also boosted U.S. Treasury yields this week, reducing demand for gold as investors shifted toward assets offering higher returns.
Other precious metals also came under pressure during Friday’s trading.
Spot silver declined 0.6% to $55.20 per ounce, platinum fell 1.1% to $1,599.17, and palladium slipped 0.4% to $1,244.16. All three metals were also on track to finish the week with losses.
Investors will continue watching developments in the Middle East, movements in oil prices, and upcoming economic data for clues about the Federal Reserve’s next policy decisions. For now, concerns that higher energy costs could reignite inflation appear to be outweighing gold’s traditional role as a safe-haven investment during periods of geopolitical uncertainty.
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