Gold prices edged lower on Friday and were set for a weekly decline as fading hopes of a swift resolution to Middle East conflicts fueled concerns that prolonged geopolitical tensions could keep inflation elevated and interest rates higher for longer.
Spot gold was down 0.2 percent at US$4,463.73 per ounce at 0849 GMT, taking its weekly decline to about 1.6 percent. U.S. gold futures for August delivery slipped 0.3 percent to US$4,491 per ounce.
The pullback comes after a volatile week in global commodity markets, driven largely by renewed uncertainty over Iran-linked tensions in the Middle East and their impact on global energy flows. Analysts say the conflict has complicated expectations for inflation and monetary policy, particularly in the United States and Europe.
Brent crude oil prices have risen about 2.8 percent over the week, supported by concerns over disruptions around key shipping routes, including the Strait of Hormuz. Higher energy costs have reinforced inflationary pressures, reducing expectations for near-term monetary easing by major central banks.
“When negotiations don’t seem to be going in the right direction, it tends to drive up oil prices. That triggers inflation fears and increases the likelihood that interest rates will remain relatively high, pressuring gold,” said Nitesh Shah, a commodity strategist at WisdomTree.
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Gold, traditionally seen as a hedge against inflation and geopolitical risk, has instead struggled to gain traction in recent weeks. Since the outbreak of Iran-related hostilities in late February, bullion has fallen roughly 16 percent, as higher energy prices have raised inflation expectations and, in turn, reduced demand for non-yielding assets.
Market participants say the metal’s performance reflects a broader shift in investor focus toward interest rate expectations, particularly in the United States. Stronger-than-expected economic data and resilient labour market figures have reinforced the view that the U.S. Federal Reserve may keep borrowing costs elevated for longer than previously anticipated.
Markets are currently pricing in a roughly 37 percent probability of a 25-basis-point rate hike by the Federal Reserve before the end of the year, according to CME Group’s FedWatch tool. Investors are now awaiting the latest U.S. nonfarm payrolls data, due later on Friday, for further clues on the policy outlook.
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“The main driver of the weaker gold price is lacklustre investment demand — and that is influenced by the U.S. economy still expanding at a solid pace, while inflation is trending higher,” said UBS analyst Giovanni Staunovo. “The payroll data will be an important input factor for the Fed.”
Elsewhere in precious metals, sentiment was similarly weak. Spot silver fell 1.7 percent to US$72.58 per ounce, while platinum dropped 1.2 percent to US$1,877.82. Palladium declined 1.5 percent to US$1,300.90. All three metals were also on track for weekly losses.
In physical markets, demand trends remained subdued. Analysts noted that buyers in key consuming markets such as India stayed on the sidelines due to price volatility, while premiums in China eased, reflecting softer retail appetite.
Despite short-term weakness, some analysts caution that gold remains supported by underlying geopolitical risks and structurally higher inflation expectations. However, they add that sustained upside will depend heavily on a shift toward lower real interest rates or a deeper deterioration in global growth conditions.
For now, traders remain focused on U.S. labour data and developments in Middle East negotiations, both of which are expected to shape the next phase of commodity price movements.
