By: Economy Middle East

Gold was heading for its biggest weekly loss in six weeks on Friday as escalating clashes between the United States and Iran lifted oil prices, adding to inflationary pressures and strengthening the case for higher U.S. interest rates.

Spot gold edged up 0.02 percent to $3,986.84 per ounce by 9:44 a.m. UAE time after touching its lowest level since July 1 earlier in the session.

U.S. gold futures for August delivery slipped 0.05 percent to $3,990.10 per ounce.

Despite its marginal advance on Friday, gold has lost 3.4 percent so far this week, its steepest weekly decline since June 1. Continuing tensions in the Middle East outweighed support from softer U.S. inflation figures released earlier in the week.

The decline highlighted the competing forces affecting bullion. Geopolitical instability typically supports demand for gold as a safe-haven asset, but the conflict’s impact on oil prices has increased concerns that inflation could remain elevated and require tighter monetary policy.

UAE rates decline

Gold rates also fell in the UAE, with 24-carat gold losing AED1.75 to AED479.75 per gram and 22-carat gold declining by the same amount to AED444.25.

The price of 21-carat gold eased AED1.50 to AED426 per gram, while 18-carat gold also fell AED1.50 to AED365.

Meanwhile, 14-carat gold declined AED1 to AED284.75 per gram.

Changes in UAE retail gold rates generally reflect movements in international bullion prices, although local prices can also vary according to timing and market adjustments. The latest decline came as global gold struggled to recover from its sharp weekly retreat.

Iran and the United States exchanged increasingly intense fire on Thursday during a week-long escalation that has largely unraveled the truce reached last month.

Oil prices have climbed about 12 percent this week as restricted flows through the Strait of Hormuz intensified concerns about global supplies. Tehran also asked the Houthi movement to prepare for a possible shutdown of the Red Sea export route.

Rate fears strengthen

The jump in oil prices risks reigniting inflation concerns and increasing the likelihood of additional U.S. interest rate increases. Higher energy costs can filter through the economy by raising transportation, production and household expenses.

Gold does not pay interest, making it less attractive when rates and bond yields rise because investors can earn higher returns from interest-bearing assets. Expectations that borrowing costs could remain elevated therefore outweighed some of the safe-haven demand generated by the conflict.

Dallas Federal Reserve President Lorie Logan became the first of Fed Chairman Kevin Warsh’s new colleagues to call publicly for an interest rate increase.

Logan said rates should be raised modestly because inflation remains too high and is not yet moving convincingly toward the Federal Reserve’s 2 percent target.

Federal Reserve Vice Chair Philip Jefferson also indicated that he would be open to raising rates if inflation does not show near-term improvement, although he currently supports maintaining the existing policy setting.

Traders were pricing in a 73 percent probability of an interest rate increase in December, according to the CME FedWatch Tool.

Other metals retreat

Elsewhere in the precious-metals market, spot silver fell 0.82 percent to $55.41 per ounce, while platinum declined 1.73 percent to $1,601.40.

Palladium eased 0.81 percent to $1,221.00 per ounce.

Silver, platinum and palladium were all heading for weekly losses, reflecting broader pressure across the precious-metals complex.

Silver frequently follows gold’s direction because of its role as both a precious and industrial metal. Platinum and palladium are also sensitive to expectations for industrial activity, particularly demand from the automotive sector, while higher interest rates and a stronger opportunity cost of holding commodities can weigh on the wider group.

The outlook for precious metals now depends partly on whether oil prices continue rising and whether the conflict causes a sustained increase in inflation expectations.

Inflation shows improvement

The latest U.S. inflation figures offered gold some support by showing that consumer price pressures moderated in June. The U.S. Bureau of Labor Statistics reported that annual headline inflation slowed to 3.5 percent from 4.2 percent in May.

Core inflation, which excludes volatile food and energy prices, eased to 2.6 percent year-on-year from 2.9 percent. The headline Consumer Price Index also fell 0.4 percent on a seasonally adjusted monthly basis, while the core index was unchanged.

Those readings initially weakened the case for an immediate rate increase. However, the energy component of the index was still 15.7 percent higher than a year earlier, leaving policymakers sensitive to another sustained rise in oil prices.

The Federal Reserve’s challenge is determining whether the June improvement represents the beginning of a lasting decline or a temporary easing that could be reversed by energy costs, tariffs or stronger demand.

Gold could receive renewed support if inflation continues cooling and expectations for higher rates decline. Conversely, a persistent oil-driven inflation shock could strengthen the case for tighter policy and keep pressure on the metal.

Fed debate deepens

In a speech delivered on Thursday, Jefferson explained that policymakers would typically respond to an economy operating above capacity, with inflation exceeding the central bank’s target, by raising rates to cool demand.

He also noted that economic shocks can create a policy trade-off if inflation rises while employment and growth weaken. Tightening policy may support price stability but can also place additional pressure on the labor market.

Logan adopted a more directly hawkish position, arguing that modestly higher interest rates would better balance the risks facing the economy. She warned that delaying action could allow inflation to become entrenched and eventually require more aggressive tightening.

The Federal Reserve maintained its benchmark interest rate at between 3.5 percent and 3.75 percent during its June meeting. According to the meeting minutes, longer-term inflation expectations remained anchored near the central bank’s 2 percent objective.

The next Federal Open Market Committee meeting is scheduled for July 28–29, placing incoming economic figures, oil prices and developments in the Middle East firmly in focus.

Gold outlook shifts

Gold’s weekly decline demonstrates that armed conflict does not automatically result in higher bullion prices. The effect depends on how the conflict influences the dollar, government bond yields, inflation expectations and central-bank policy.

If geopolitical tensions intensify while economic growth weakens, safe-haven demand could begin to dominate. However, if the principal market effect is higher oil prices and a greater probability of rate increases, gold may remain under pressure despite continued uncertainty.

Investors will therefore monitor movements around the Strait of Hormuz and the Red Sea alongside U.S. inflation data, Fed communications, Treasury yields and the dollar.

The $4,000-per-ounce level is also likely to remain an important psychological threshold. Gold’s ability to recover above it could indicate renewed buying interest, while continued weakness would leave the metal exposed to a deeper correction following its 3.4 percent weekly decline.