Gold set for weekly drop as oil-led inflation revives Fed hike bets

Gold slipped on Friday and headed for a weekly decline, as traders weighed stubborn US inflation risks against hopes that a possible Middle East peace deal could ease the energy shock that has dominated bullion trading in recent months.

Spot gold traded near $4,191 an ounce in Asian hours, leaving the metal on course for a weekly fall of about 3%.

US gold futures for August delivery advanced, but the broader tone stayed cautious after a volatile session that dragged bullion to its lowest level in more than six months before a late rebound.

The metal has struggled despite its traditional haven appeal.

Investors are instead focused on the risk that higher oil prices could keep inflation elevated and force the Federal Reserve to consider another rate increase.

That has raised the opportunity cost of holding gold, which pays no interest.

Geopolitics drives the price action

The latest move in bullion has been shaped by headlines from Washington and Tehran.

US President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend, after calling off planned strikes.

Iran, however, has not confirmed a final decision, leaving traders reluctant to price in a clean diplomatic breakthrough.

A deal that reopens the Strait of Hormuz and lowers the risk of supply disruption would likely reduce the inflation premium embedded in oil and, by extension, gold.

That leaves bullion caught between two forces.

Easing geopolitical risk can weaken safe-haven demand, while lower oil prices may reduce the pressure on central banks to tighten policy further. For now, the rate story appears to be carrying more weight.

Inflation keeps Fed risk alive

US producer prices rose more than expected in May, recording the strongest annual increase in three and a half years as energy costs surged.

The data reinforced concerns that the Middle East conflict has fed through into pipeline inflation, complicating the Fed’s path.

Markets are assigning a roughly 60% probability to a December rate increase, according to CME Group’s FedWatch tool.

Any signal from Fed officials that policy may need to tighten again could test gold’s support near the $4,000 level.

ETF outflows add to pressure

Investor positioning has also softened. Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, slipped to about 923.89 metric tons, suggesting some investors are reducing exposure after the recent rally.

Elsewhere in precious metals, silver edged lower and was set for a weekly loss, while platinum also remained under pressure.

Palladium was the outlier, rising on the day and holding a weekly gain.

The next direction for gold is likely to depend on which signal becomes clearer first: a credible peace deal in the Gulf, or evidence that inflation will keep the Fed leaning hawkish for longer.