By: Economy Middle East

Gold prices extended their decline on Friday after sliding 2 percent in the previous session, pressured by a rebound in Brent crude above $100 a barrel that raised inflation concerns and reinforced expectations that the Federal Reserve may keep interest rates higher for longer ahead of next week’s policy meeting.

Spot gold fell 0.52 percent to $4,028.70 an ounce by 5:30 GMT, leaving prices more than $130 below Wednesday’s two-week peak. U.S. gold futures for August delivery also declined 0.48 percent to $4,030.85 an ounce.

In the UAE, gold rates edged lower, with 24-carat gold and 22-carat gold losing AED2.25 to AED485.25 and AED449.25, respectively.

In addition, 21-carat gold declined AED2 to AED430.75 and 18-carat gold dipped AED1.75 to AED430.75.

Meanwhile, 14-carat gold fell AED1.25 to AED288.

Gold prices set for modest weekly gain

Gold prices were still on course for a modest weekly gain of 0.4 percent, despite the recent pullback.

U.S. President Donald Trump on Thursday vowed major military punishment against Iran and its Houthi allies after the Yemeni group attacked two Saudi oil tankers in the Red Sea.

Gold prices declined as oil continued to climb, adding to inflationary pressures and reinforcing expectations of potential Federal Reserve rate hikes, limiting gold’s upside despite a weaker dollar. Brent crude jumped 7 percent on Thursday, breaking above $100 a barrel for the first time since May and marking one of the sharpest price increases since the conflict began.

The surge in oil prices has intensified concerns over inflation and the possibility of interest rates remaining elevated for longer. While gold is often viewed as a hedge against inflation, higher interest rates tend to weigh on the appeal of the non-yielding asset.

Fed rate hike bets grow as inflation concerns rise

Investors are also turning their attention to next week’s Federal Reserve meeting, where the central bank is widely expected to leave rates unchanged. However, futures markets are largely pricing in at least one rate hike by the end of the year.

Traders are now pricing in an 81 percent probability of a rate hike in September, according to the CME FedWatch Tool.

Meanwhile, the European Central Bank held interest rates steady on Thursday as expected but signaled that another increase could still be on the table in September.

Other precious metals

As gold prices fell, the broader precious metals market declined. Spot silver declined 0.7 percent to $57.29 an ounce, though it remained on track for a 2.5 percent weekly gain. Platinum slipped 1.3 percent to $1,579.49, while palladium fell 1.5 percent to $1,237.50, with both metals headed for weekly losses.