Gold Set for Weekly Loss as Oil Surge Stokes Inflation, Fed Rate Fears

Gold prices slipped on Friday, putting the precious metal on course for a weekly decline as a surge in oil prices, fueled by escalating U.S.-Iran tensions, intensified concerns about persistent inflation and a hawkish Federal Reserve.

Market Performance

As of 16:50 ET, spot gold traded down 0.2% at $4,114.45 per ounce, while gold futures for near-term delivery fell 0.5% to $4,122.47 per ounce. According to Investing.com data, both contracts were tracking a weekly loss of approximately 1.6%.

The primary pressure on gold, a non-yielding asset, stems from the prospect of higher-for-longer interest rates. Rising oil prices can contribute to broader inflation, increasing the likelihood that the U.S. central bank will keep monetary policy tight to manage price pressures. This raises the opportunity cost of holding bullion compared to interest-bearing assets like bonds.

Geopolitical Tensions Drive Oil Higher

The catalyst for the week's market moves was a fresh exchange of strikes between Washington and Tehran. Tensions flared after Iran reportedly attacked three commercial oil tankers in and around the Strait of Hormuz, a critical chokepoint for global energy supplies.

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This led to reduced tanker traffic through the strait as shippers grew more cautious, sparking supply concerns and adding a geopolitical risk premium to oil prices. According to analysts at ANZ, gold found some support from expectations of a limited escalation, but this was outweighed by "concerns that a rebound in energy prices could see the Fed keeping interest rates higher for longer."

Focus Shifts to Inflation Data

Investors are closely monitoring the Federal Reserve's stance on inflation. Minutes from the Fed's June 16-17 meeting, published this week, revealed an evenly divided debate among policymakers regarding the outlook for rates and persistent concerns about inflationary pressures.

Market participants are now looking ahead to key U.S. economic data for further direction. The upcoming releases include:

• Consumer Price Index (CPI) for June, due on Tuesday.
• Producer Price Index (PPI) for June, due on Wednesday.