By: Economy Middle East

Gold prices edged lower on Friday and were on track for a weekly decline as escalating tensions between the United States and Iran heightened inflation concerns and reinforced expectations that the U.S. Federal Reserve could keep monetary policy tighter for longer.

Spot gold fell 0.49 percent to $4,111.68 per ounce by 9:30 UAE time, while U.S. gold futures for August delivery declined 0.47 percent to $4,121.50 an ounce.

The precious metal was set for a weekly loss of around 1.5 percent.

UAE gold prices decline

In the UAE, gold rates also moved lower on Friday. The price of 24-carat gold decreased by AED1.50 to AED495.75, while 22-carat gold dropped by AED1.50 to AED459.00. Additionally, 21-carat gold fell by AED1.25 to AED440.25, 18-carat gold declined by AED1.25 to AED377.25, and 14-carat gold lowered by AED1.00 to AED294.25.

Middle East tensions lift inflation concerns

Gold came under pressure as renewed military exchanges between the United States and Iran pushed oil prices higher, raising concerns that energy-driven inflation could delay interest rate cuts or even prompt further policy tightening.

Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday following U.S. strikes on Iran’s southern coastal and eastern provinces, adding to geopolitical uncertainty across the Middle East.

The rise in oil prices has increased expectations that inflation could remain elevated, reinforcing the likelihood that the Federal Reserve will maintain a hawkish policy stance.

Fed rate expectations weigh on bullion

According to CME’s FedWatch Tool, markets are now pricing in a 63 percent probability of a September interest rate hike, up from around 54 percent a week earlier.

Higher interest rates generally reduce the appeal of gold because the precious metal does not generate interest or dividend income, making yield-bearing assets more attractive.

Minutes from the Federal Reserve’s June policy meeting, released earlier this week, also highlighted growing concern among policymakers over persistent inflationary pressures, further supporting expectations that borrowing costs could remain elevated.

Other precious metals

Elsewhere, other precious metals traded mixed on Friday.

Spot silver rose 0.10 percent to $60.26 per ounce, platinum advanced 1.22 percent to $1,632.16, while palladium gained 1.71 percent to $1,251.00 per ounce.

Despite Friday’s gains, all three metals remained on track to post weekly losses.