Gold Heads for Biggest Weekly Loss Since June as Mideast Tensions Stoke Inflation Fears

Gold prices steadied on Friday but are poised for their most significant weekly loss since early June, as escalating military tensions in the Middle East drive oil prices higher and reignite concerns about persistent inflation.

Spot gold (XAU/USD) was trading around $3,978.77 an ounce late Thursday ET, according to Investing.com data. Despite the small daily gain, bullion prices are down approximately 3.4% for the week, pressured by a stronger U.S. dollar and rising Treasury yields.

Oil Prices Complicate Fed's Outlook

The primary catalyst for gold's decline is the market's reaction to renewed U.S.-Iran hostilities. A recent wave of U.S. strikes on Iranian targets, following an attack on an oil tanker, has kept crude oil prices elevated. This has stoked fears that higher energy costs could reverse the recent trend of cooling inflation.

Investors are largely looking past this week's softer-than-expected U.S. consumer and producer price index reports, viewing them as backward-looking. The prospect of resurgent inflation complicates the Federal Reserve's policy path, increasing the likelihood that the central bank will keep interest rates higher for longer to ensure price stability. This hawkish outlook supports the U.S. dollar, making non-yielding assets like gold less attractive by comparison.

Analyst Sees Key Technical Test

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Federal Reserve officials have consistently signaled a cautious stance, stressing that inflation remains too high to consider monetary easing. They have warned that higher oil prices could pose a significant risk to the inflation outlook.

Tony Sycamore, a senior market analyst at IG, noted that gold's inability to rebound after the soft inflation data was "not a particularly encouraging sign" for its near-term prospects. He identified the late-June low of $3,942 as a critical support level.

• A decisive break below $3,942 could open the door to further declines toward the October 2025 low near $3,886, Sycamore said.
• Conversely, a recovery above downtrend resistance around $4,140 would be needed to improve the technical picture.

For now, the analyst added, gold remains in a "delicate spot," weighed down by a stronger dollar and investor flows toward interest-bearing assets.