Commodity wrap: Gold prices set for weekly loss; oil surges 17% this week

Gold prices edged higher on Friday, but were set for weekly losses due to persistent inflation concerns. Silver prices also mirrored gold’s move and climbed 0.7% on COMEX. 

Meanwhile, oil prices were mixed, with Brent slightly higher and West Texas Intermediate falling nearly 1% on Friday. However, Brent has surged 16% and WTI 14% so far this week.

Among base metals, both aluminium and copper prices on the London Metal Exchange fell. “The conflict in the Middle East could lead, in the short to medium term, to a further increase in market concentration in the aluminium sector in favour of China,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in a report. 

Gold prices head for weekly losses

Gold prices rose slightly on Friday; however, they were heading for their first weekly decline in five weeks, as the ongoing impasse in the Iran war continued to fuel inflation worries.

“Investors reacted to worries that the war between the US and Iran will prove more protracted than most considered likely even a week ago,” said David Morrison, senior market analyst at Trade Nation. 

Tensions persist despite US President Donald Trump's indefinite extension of the shaky ceasefire.

Both the US and Iran continue to provoke each other, with Iran labeling the US naval blockade of its Persian Gulf and Strait of Hormuz ports an "act of war." 

This week saw further escalation with Iranian forces seizing two container ships in the Strait of Hormuz, and the US military intercepting at least three Iranian oil tankers in Asian waters.

At the time of writing, the COMEX gold contract was at $4,736.90 per ounce, up 0.27% from the previous close.

Silver was 0.2% higher at $75.72 an ounce. Gold prices are about 2% down for the week. 

Crude prices have posted a weekly gain of 17%, with Brent trading slightly higher at $105 per barrel on Friday.

Rising crude oil prices typically fuel inflation, which in turn increases the likelihood of higher interest rates.

While gold is traditionally viewed as a hedge against inflation, the non-yielding metal's appeal diminishes when interest rates are high.

Gold's appeal diminished this week as the benchmark 10-year US Treasury yields rose by 1.6%, increasing the opportunity cost of holding the metal. 

Additionally, the dollar's strength—poised for its first weekly gain in three—made gold more expensive for those using other currencies.

Oil prices volatile

Oil prices experienced volatility on Friday as traders considered the impact of supply disruptions alongside the potential resumption of peace talks between the US and Iran.

Fears of renewed military escalation drove prices up by 2% earlier in the session, following Iran's release of footage showing commandos boarding a cargo ship in the Strait of Hormuz.

This price increase occurred amid stalled progress on reopening the key waterway.

Prices fell back after three Pakistani sources informed Reuters that Iranian Foreign Minister Abbas Araqchi and a small team were expected to arrive in Islamabad late on Friday. Pakistan is currently hosting peace talks.

At the time of writing, the Brent contract was at $105.63 a barrel, slightly higher, while WTI was at $95.35 a barrel. 

This week, Brent crude has seen a rise of approximately 17% and WTI a rise of 14%.

These figures represent their second-largest weekly gains recorded since the start of the war.

The Strait of Hormuz, a critical waterway for approximately one-fifth of the world's oil supply, remains essentially impassable since the start of the conflict.

The capture of two cargo vessels by Iran underscores the challenges Washington faces in maintaining control over this vital passage.

“So, with both sides blockading shipping across the Strait of Hormuz, and, in the US case, beyond, the probability that this war will drag on without a conclusion, possibly for many more months, must be a consideration,” Trade Nation’s Morrison said.