Why are investors selling gold despite rising geopolitical risks?

Gold fell on Friday and was set for a second straight weekly decline as a stronger US dollar and rising oil prices reinforced expectations that the Federal Reserve may need to keep monetary policy tight for longer.

Spot gold was down 0.4% at $4,522.89 an ounce by 0222 GMT, leaving it about 0.3% lower for the week. US June gold futures also eased 0.4% to $4,524.40.

The dollar held near a six-week high, making bullion more expensive for buyers using other currencies. That has added pressure on gold at a time when investors are reassessing the outlook for US interest rates and inflation.

Gold is usually seen as a hedge against inflation and a store of value during periods of market stress. However, higher interest rates tend to reduce its appeal because bullion does not offer a yield.

Dollar strength weighs on bullion

The main drag on gold has come from renewed dollar strength and expectations that borrowing costs could remain elevated.

“What’s been driving gold lower has been the stronger dollar, which in turn is being elevated by ongoing high interest rates pretty much around the world,” Edward Meir, an analyst at Marex, said in comments cited by Reuters.

Markets are now pricing in a Federal Reserve rate increase before the end of the year. CME Group’s FedWatch tool showed a 60% chance of a move by December.

That shift has undermined demand for gold, with investors weighing whether inflation pressures are strong enough to force the Fed into a more restrictive stance.

Higher rates increase the opportunity cost of holding bullion and can draw capital towards yield-bearing assets such as bonds.

Oil prices add to inflation concerns

Energy markets are also feeding into the gold outlook.

Oil prices rose as investors questioned whether US-Iran talks would deliver a breakthrough capable of easing tensions in the Middle East.

US Secretary of State Marco Rubio said there had been “some good signs” in discussions, though Tehran’s uranium stockpile and control over the Strait of Hormuz remained major sticking points, Reuters reported.

The Strait of Hormuz is a critical route for global oil shipments. Any disruption to flows through the waterway could push energy prices higher and intensify inflation concerns.

That matters for gold because persistent inflation can support haven demand, but it can also lead central banks to keep rates higher for longer.

In the current market, the rate impact appears to be dominating the traditional inflation-hedge appeal of bullion.

Fed signals remain in focus

Investors are also watching Federal Reserve developments for direction.

US President Donald Trump is set to swear in Kevin Warsh as Federal Reserve chair on Friday at the White House, the administration said.

Separately, Richmond Fed President Thomas Barkin said the response of businesses and consumers to ongoing economic shocks would determine whether the central bank can look through current high inflation or needs to consider further rate increases.

The comments underline the uncertainty surrounding the policy outlook.

Traders are likely to remain sensitive to incoming inflation data, labour-market signals and Fed commentary in the coming weeks.

Other precious metals trade mixed

Other precious metals were mixed on Friday.

Silver fell 0.7% to $76.18 an ounce but remained on course for a 0.4% weekly gain.

Platinum dropped 1% to $1,945.97, while palladium slipped 0.5% to $1,371.90. Both platinum and palladium were set for weekly losses.

For now, gold remains caught between geopolitical risks that usually support haven assets and a stronger dollar that continues to weigh on demand.

Unless the dollar weakens or rate-hike expectations ease, bullion may struggle to recover momentum.