Gold set for biggest weekly drop in six weeks

Gold prices are heading for their biggest weekly decline in six weeks as rising oil prices triggered by escalating tensions between the United States and Iran fuel inflation concerns and strengthened expectations of higher US interest rates.

Spot gold rose 0.5% to $3,988.20 per ounce on Friday, after falling earlier in the session to its lowest level since July 1. US gold futures for August delivery remained steady at $3,992 per ounce.

Despite Friday’s recovery, gold prices have fallen 3.2% so far this week — the sharpest weekly decline since June 1. Softer-than-expected US inflation data for June provided some support, but renewed Middle East tensions offset the gains.

“While CPI and PPI data showed some easing in inflation pressures, traders have not been able to celebrate as oil prices surged this week,” said Tim Waterer, chief market analyst at KCM Trade.

He said geopolitical risks in the Middle East remain elevated, with concerns over inflation and bond yields continuing to weigh on gold prices.

A month-old ceasefire effectively collapsed on Thursday as Iran and the US exchanged heavy attacks and gunfire. Oil prices have jumped nearly 12% this week after disruptions to crude shipments through the Strait of Hormuz, while Tehran has reportedly urged Houthi forces to prepare for a possible blockade of the Red Sea export route.

Rising oil prices have renewed inflation fears, increasing the likelihood of higher interest rates. Higher rates typically reduce demand for non-yielding assets like gold as investors shift toward interest-bearing investments.

Dallas Federal Reserve President Lorie Logan has become the first among Fed Chair Kevin Warsh’s new colleagues to publicly support raising interest rates. Fed Vice Chair Philip Jefferson also indicated he would favour a rate hike if inflation fails to improve soon.

According to the CME FedWatch tool, traders are currently pricing in a 73% probability of an interest rate increase in December.

Among other precious metals, spot silver fell 0.5% to $55.22 per ounce, platinum dropped 0.7% to $1,605.62, and palladium declined 0.4% to $1,244.86. All three metals are also set to end the week lower.

Source: Reuters