NEW YORK: Gold edged lower on Friday, and was headed for a weekly loss, as fading hopes of a swift resolution to the Middle East conflict fuelled fears of higher inflation and elevated interest rates.
Spot gold was down 0.2percent at USD4,463.73 per ounce at 0849 GMT. The metal has fallen about 1.6percent so far this week. US gold futures for August delivery fell 0.3percent to USD4,491.
The Iran-backed Hezbollah militia rejected a new ceasefire in Lebanon and Israel said it would not withdraw troops from the country, undermining US President Donald Trump’s efforts to halt fighting there to forge peace with Tehran.
“When the Iran-US negotiations don’t seem to be going in the right direction, it tends to drive up oil prices. That triggers inflation fears and increases the likelihood that interest rates will remain relatively high, pressuring gold,” said Nitesh Shah, commodity strategist at WisdomTree.
Brent crude oil prices have risen 2.8percent so far this week as the key Strait of Hormuz remains largely shut. Bullion has fallen about 16percent since the Iran conflict began in late February as oil prices rose, stoking fears of inflation and higher interest rates. While gold is seen as a hedge against inflation, higher rates tend to weigh on the non-yielding metal.
Markets are currently pricing in a Federal Reserve rate hike before year-end, with a 37percent chance of a 25 basis point hike in December, according to CME Group’s FedWatch tool. Investors now await May US nonfarm payrolls data, due later in the day, to gauge the Fed’s monetary policy path.
“The main driver of the weaker gold price is lackluster investment demand – and that is influenced by the US economy still expanding at a solid pace, while inflation is trending higher. The payroll data will be an important input factor for the Fed,” said UBS analyst Giovanni Staunovo.
Meanwhile, gold demand was subdued in India this week as buyers stayed on the sidelines due to volatile overseas prices, while premiums in China eased.
Spot silver fell 1.7percent to USD72.58 per ounce, platinum dropped 1.2percent to USD1,877.82, and palladium slid 1.5percent to USD1,300.90. They were all headed for a weekly loss.
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