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REUTERS: Gold prices are on track for their biggest weekly decline in six weeks, as soaring oil prices triggered by the escalating conflict between the United States and Iran have renewed concerns over inflation and higher US interest rates.
On Friday, spot gold rose 0.5 pc to $3,988.20 an ounce, after falling to its lowest level since July 1 earlier in the session. Meanwhile, US gold futures for August delivery were little changed at $3,992 an ounce.
Despite Friday’s modest rebound, gold has fallen 3.2 pc so far this week, marking its steepest weekly decline since June 1.
Although softer US inflation data for June initially offered support to bullion, renewed geopolitical tensions in the Middle East and surging oil prices overshadowed the positive sentiment.
Tim Waterer, chief market analyst at KCM Trade, said easing inflation indicators such as the CPI and PPI failed to reassure investors as oil prices jumped sharply during the week.
“Geopolitical risks in the Middle East remain elevated. Concerns over inflation and rising bond yields are currently capping gains in gold,” he said.
Hostilities between the US and Iran intensified on Thursday, effectively ending a month-long ceasefire, with both sides exchanging large-scale attacks.
Oil prices have surged about 12 pc this week amid concerns over disruptions to energy shipments through the Strait of Hormuz. Tehran has also urged the Houthis to prepare to block exports through the Red Sea, raising fears of further supply disruptions.
Higher oil prices are expected to fuel inflation, strengthening expectations that the US Federal Reserve could raise interest rates.
Higher borrowing costs generally reduce the appeal of non-yielding assets such as gold.
Dallas Fed President Lorie Logan became the first among newly appointed Federal Reserve officials to publicly support another rate hike, while Fed Vice Chair Philip Jefferson also signalled support for higher rates if inflation fails to ease.
According to the CME FedWatch Tool, traders are currently pricing in a 73 pc probability of a US interest rate hike in December.
Among other precious metals, spot silver fell 0.5 percent to $55.22 an ounce, platinum slipped 0.7 pc to $1,605.62, and palladium declined 0.4 percent to $1,244.86. All three metals were also heading for weekly losses.
