Gold set for weekly drop as higher oil prices stoke inflation fears

Gold held steady on Friday, but was on track ‌for a weekly drop as elevated oil prices fuelled fears of inflation and higher-for-longer interest rates amid stalled US-Iran peace talks.

Spot gold was down 0.1% at $4,686.29 per ounce, as of 0230 GMT. The metal is down ​3% so far this week after a four-week winning run.

US gold futures for June ​delivery fell 0.5% to $4,702.

Brent crude prices have risen over 17% so far ⁠this week to hover above $105 a barrel, as the key Strait of Hormuz remained largely ​closed despite an extension of the Iran ceasefire.

As long as this risk of prolonged closure of the ​Strait of Hormuz is there, oil will continue to trade at elevated levels, pressuring gold prices, said Kelvin Wong, a senior market analyst at OANDA.

Higher crude oil prices can stoke inflation by raising transportation and production ​costs, increasing the likelihood of higher interest rates.

While gold is considered an inflation hedge, high ​interest rates make yield-bearing assets more attractive, weighing on bullion’s appeal.

“Gold is still being trapped in this sideways ‌range, ⁠between the 50-day moving average at around $4,900 and at the bottom, the 20-day moving average at $4,645 level,” Wong said, adding that “everything now boils down to what’s going on in the Middle East.”

Iran flaunted its tightened grip over the strait on Thursday with a video of commandos in a speedboat ​storming a huge cargo ​ship, after the ⁠collapse of peace talks that Washington had hoped would open one of the world’s most important shipping corridors.

Trump told reporters that he believed Tehran ​wanted to make a deal but that its leadership was in ​turmoil. He said ⁠he was in no hurry for a deal, but if Iran did not want one, “I’ll finish it up militarily.”

The U.S. dollar is up 0.7% so far this week, making greenback-priced bullion more ⁠expensive for ​other currency holders.

The benchmark 10-year U.S. Treasury yields have ​gained over 2% this week, increasing the opportunity cost of holding non-yielding bullion.

Spot silver fell 0.3% to $75.22 per ounce, platinum ​lost 0.6% to $1,993.63, while palladium was down 0.3% at $1,464.12.