Gold Prices Set for Weekly Loss as Oil Surge Rekindles Fed Rate Hike Fears

Gold prices slipped on Friday, putting the precious metal on course for a weekly loss as rising geopolitical tensions in the Middle East pushed oil prices higher. The surge in energy costs has renewed investor concerns that persistent inflation could compel the Federal Reserve to maintain a restrictive monetary policy.

Price Action

By late Friday trading, the market reflected a cautious sentiment towards the non-yielding asset. Key figures from the session include:

• Spot gold declined 0.2% to $4,114.45 per ounce.
• Gold futures for future delivery fell 0.5% to $4,122.47 per ounce.
• Both contracts were tracking a weekly loss of approximately 1.6%, according to data from Investing.com.

Geopolitics Fueling Inflation Jitters

The primary driver for the week's price action was the escalation of conflict between the United States and Iran. A series of strikes, including reported Iranian attacks on three commercial oil tankers near the Strait of Hormuz, caused a spike in crude oil prices. This geopolitical premium in energy markets directly translates into fears of broader inflation.

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Higher inflation could force the Federal Reserve to keep interest rates elevated for a longer period. Higher rates increase the opportunity cost of holding gold, which does not offer a yield, thereby dampening its appeal to investors. Analysts at ANZ noted that gold found some support on expectations that the conflict's escalation might be limited, despite the overarching inflation concerns.

Fed Policy and Data in Focus

Minutes from the Federal Reserve's June 16-17 meeting, released this week, revealed that policymakers were evenly divided on the future path for interest rates. The central bank remains concerned about inflationary pressures stemming not only from geopolitical events but also from factors like AI-related demand and tariffs.

Investors are now looking ahead to crucial U.S. inflation data next week. The Consumer Price Index (CPI) for June is scheduled for release on Tuesday, followed by the Producer Price Index (PPI) on Wednesday. While analysts had previously suggested that May's inflation readings might represent a peak, the recent rise in oil prices has introduced new uncertainty into the economic outlook.