Gold Rises Friday but Posts 2.6% Weekly Loss, Worst in Six Weeks on Inflation and Rate Hike Concerns

Gold rose Friday (17th) but dropped 2.6% for the week, marking its biggest decline in six weeks, reflecting investor anxiety over rising inflation and sustained high interest rates even as U.S.-Iran tensions escalate and push up energy prices.

Spot gold gained 1%, trading at $4,011.29 per ounce, having touched its lowest level since June 30 earlier in the session.

August-delivery gold futures rose 0.7%, closing at $4,018.80 per ounce.

Gold declined 2.6% for the week.

The dollar rose for a second consecutive week, making dollar-denominated gold more expensive for investors holding other currencies.

Chris Gaffney, President of Global Markets at EverBank, said: "The main driver behind the gold sell-off is the stronger dollar, global inflation concerns, and rising interest rates worldwide."

The U.S. intensified its offensive against Iran, striking bridges and airports, while Iran retaliated by launching air attacks on multiple U.S. bases in the Middle East. Brent crude rose about 16% this week.

Since the U.S. and Iran went to war in late February, gold has fallen about 25%, as war-driven inflation fears have led to expectations of persistently high interest rates.

Although gold is also a hedge against inflation, its appeal diminishes in a high-interest-rate environment because it does not generate yield.

Gaffney said: "Recent data have reduced the likelihood of a rate hike by the Federal Open Market Committee (FOMC). However, rising global interest rates combined with the recent surge in oil prices could prompt the Federal Reserve (Fed) to adopt a more hawkish stance on U.S. monetary policy."

The CME's FedWatch tool shows traders are pricing in about a 58% chance of a Fed rate hike in September.

Fed Vice Chair Phillip Jefferson hinted Thursday that he would not rule out a rate hike if inflation does not improve in the short term.

However, Goldman Sachs said gold's share in private investment portfolios remains low, and recent geopolitical developments, including those involving Iran, could accelerate the trend of portfolio diversification from central banks to retail investors.

Other Precious Metals Trading

Spot silver rose 1%, trading at $56.06 per ounce.

Spot platinum fell 1.4%, trading at $1,595.64 per ounce.

Spot palladium was flat, trading at $1,249.63 per ounce.

All three metals posted weekly declines.