Gold prices were on course for their biggest weekly decline in six weeks as escalating tensions between the United States and Iran pushed oil prices higher, raising inflation concerns and increasing expectations of higher U.S. interest rates.
Spot gold rose 0.5% to $3,988.20 per ounce on Friday after hitting its lowest level since July 1 earlier in the session. U.S. gold futures for August delivery were little changed at $3,992.
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Despite the modest rebound, gold has fallen 3.2% this week, marking its largest weekly loss since early June.
Market analysts said the sharp rise in oil prices has overshadowed softer-than-expected U.S. inflation data released this week.
“Geopolitical risks in the Middle East are still present, with inflation and yield concerns being the dominant forces holding gold back,” said Tim Waterer, Chief Market Analyst at KCM Trade.
Oil prices have climbed about 12% this week following intensified fighting between the United States and Iran and concerns over disruptions to energy supplies through the Strait of Hormuz and the Red Sea.
Higher oil prices have renewed fears of persistent inflation, strengthening expectations that the U.S. Federal Reserve could raise interest rates.
Dallas Federal Reserve President Lorie Logan publicly backed a rate hike, while Fed Vice Chair Philip Jefferson indicated he would support tighter monetary policy if inflation does not improve.
According to the CME FedWatch Tool, traders are currently pricing a 73% probability of a U.S. interest rate increase in December.
Meanwhile, other precious metals also declined, with silver falling 0.5% to $55.22 per ounce, platinum down 0.7% to $1,605.62, and palladium easing 0.4% to $1,244.86. All three were also on track for weekly losses.
