Gold Set for Weekly Loss as Oil Surge Boosts Fed Rate Hike Expectations

Gold prices edged lower on Friday, positioning the precious metal for a weekly loss of more than 2% as renewed inflation concerns weighed on investor sentiment. The decline was primarily driven by a surge in energy prices and a corresponding rise in U.S. Treasury yields, which bolstered expectations for a more aggressive monetary policy stance from the Federal Reserve.

Rising Yields and Oil Prices Pressure Gold

The key drivers for gold this week have been developments in the energy and bond markets. Oil prices remained elevated following a surge on Thursday, sparked by geopolitical tensions surrounding the Strait of Hormuz, a critical chokepoint for global energy supplies. According to Investing.com, these higher fuel costs have raised concerns that the pace of easing inflation could slow, potentially forcing the Fed to act more decisively.

This sentiment was reflected in the U.S. bond market, where Treasury yields rose sharply. The 30-year Treasury yield approached 5.5%, its highest level in over two decades. Higher bond yields increase the opportunity cost of holding non-yielding assets like gold, making them less attractive to investors.

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Market Outlook and Investor Demand

The prospect of further interest rate hikes by the Federal Reserve creates a challenging macroeconomic environment for gold. Higher rates tend to support the U.S. dollar and bond yields, both of which typically exert downward pressure on the dollar-denominated metal.

Despite these headwinds, analysts at ANZ noted that investment demand for gold has remained resilient, with no significant liquidations from investment positions observed so far. However, the near-term direction for gold prices remains closely tied to incoming inflation data, energy market stability, and evolving expectations for central bank policy.