Gold Set for Biggest Weekly Loss in Six Weeks as US-Iran War Drives Inflation Concerns

By Staff, Agencies

Gold was on course for its largest weekly decline in six weeks on Friday as escalating military confrontation between the United States and Iran pushed oil prices higher, fueling inflation concerns and reinforcing expectations that US interest rates could remain elevated.

Spot gold rose 0.6% to $3,993.22 per ounce by 0758 GMT after earlier falling to its lowest level since July 1. US gold futures for August delivery edged up 0.1% to $3,996.90.

Despite Friday's modest recovery, bullion has declined around 3% this week, marking its steepest weekly loss since early June as geopolitical developments in the Middle East outweighed support from softer-than-expected US inflation data released earlier in the week.

Tim Waterer, chief market analyst at KCM Trade, said gold attracted bargain buying after briefly slipping below the $4,000-per-ounce level.

However, he noted that rising inflation expectations and higher bond yields linked to the escalating US-Iran conflict remain the dominant factors limiting further gains.

Oil prices have surged roughly 12% this week as continued military exchanges between Washington and Tehran heightened concerns over global energy supplies and potential disruptions to key export routes.

The sharp increase in energy prices has renewed fears of persistent inflation, strengthening the case for tighter US monetary policy.

Gold, which does not generate interest income, generally becomes less attractive when interest rates rise, as investors shift toward higher-yielding assets.

Dallas Federal Reserve President Lorie Logan became the first member of the current Federal Reserve leadership to publicly advocate a potential interest rate increase, while Federal Reserve Vice Chair Philip Jefferson also indicated he would support additional tightening if inflation does not improve.

According to the CME FedWatch Tool, financial markets are currently pricing in a roughly 73% probability of a Federal Reserve rate hike in December.

Physical gold demand also remained subdued in major Asian markets. Discounts in India widened to their highest level in a month as buyers anticipated lower prices, while premiums in China were largely unchanged.

Other precious metals also weakened during the week. Spot silver slipped 0.1% to $55.45 per ounce, platinum fell 1.9% to $1,586.63, and palladium declined 1% to $1,237.47, with all three metals also heading for weekly losses.