Gold Prices Post Steepest Weekly Loss in Four Months as Oil Surge Fuels Fed Rate Hike Bets

Gold prices tumbled on Friday, poised for their most significant weekly decline in over four months as a rally in crude oil fueled investor concerns about persistent inflation and the potential for further U.S. interest rate hikes.

Prices Under Pressure

By late Friday trading, spot gold had declined by 0.7% to $3,995.63 an ounce, putting it on course for a weekly loss of more than 3.7%, according to Investing.com data. Gold futures, after a slight rebound, were trading around $4,002.10 an ounce but were still set for a weekly drop of 3.8%.

The precious metal's decline comes as its traditional role as a safe-haven asset has been overshadowed by macroeconomic factors. Analysts at ING noted that the gold market has not benefited from a recent selloff in technology stocks, instead appearing "more focused on higher oil prices and what it could mean for inflation -- and ultimately central bank policy."

Oil Rally Stokes Inflation Fears

The primary catalyst for gold's downturn is a sharp increase in energy prices. Brent crude futures, the global oil benchmark, climbed to $116 a barrel for the first time since May, marking a weekly gain of over 3%.

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This surge is driven by escalating geopolitical tensions in the Middle East. According to media reports, the U.S. and Israel are considering military action against Iran, while Iran-backed Houthi militants have continued attacks on sites in Saudi Arabia. These developments have stoked fears of significant supply disruptions from the critical oil-producing region, threatening to exacerbate global inflationary pressures.

Federal Reserve Policy in Focus

Stubbornly high inflation puts pressure on the Federal Reserve to maintain a hawkish monetary policy. While the central bank is widely expected to hold rates steady at its upcoming meeting on October 27-28, markets are anticipating a potential rate hike at its December meeting to bring inflation back toward its 2% target.

Higher interest rates increase the opportunity cost of holding non-yielding assets like gold, making interest-bearing instruments such as bonds more attractive to investors. This dynamic has weighed heavily on the yellow metal, overriding its appeal as a hedge during times of market volatility.