Gold prices extended their decline on Friday as escalating tensions in the Middle East pushed energy prices higher, strengthening expectations that the U.S. Federal Reserve may keep monetary policy tighter for longer to contain inflation.
Spot gold fell as much as 0.7% to around $4,020 per ounce, following a 2% decline in the previous session. The retreat erased much of the metal’s earlier gains this week, which had been driven by bargain buying after recent weakness.
The decline highlights a shift in market sentiment, with investors increasingly focused on the inflationary impact of surging oil prices rather than gold’s traditional role as a geopolitical safe haven.
Energy Rally Clouds Gold Outlook
The latest weakness in gold comes as crude oil prices climbed sharply amid renewed concerns over supply disruptions in the Middle East.
Higher energy prices are expected to feed into broader inflation, increasing the likelihood that the Federal Reserve will maintain elevated interest rates for longer. Higher interest rates generally weigh on non-yielding assets such as gold by raising the opportunity cost of holding the precious metal.
Middle East Conflict Intensifies
The conflict entered a new phase after last month’s ceasefire effectively collapsed.
President Donald Trump warned that the United States could intensify military strikes against Iran and said Tehran would be held responsible for any further attacks by Yemen’s Houthi movement on commercial shipping in the Red Sea.
The renewed escalation has increased uncertainty across financial markets, supporting oil prices while creating fresh concerns over inflation and global economic stability.
Gold Holds Above Key Support
Despite the recent decline, gold has largely traded around the $4,000 per ounce level since late June, a price many market participants view as an important technical support level.
The precious metal has fallen by roughly 25% since U.S. and Israeli military strikes against Iran earlier this year ended a multi-year rally that had lifted gold to a record high of nearly $5,600 per ounce.
Analysts say the metal’s next direction will likely depend on whether investors prioritize geopolitical risks or the prospect of higher interest rates.
Other Precious Metals Also Weaken
Spot gold was last trading around $4,030.90 per ounce, down 0.5% on the day.
Silver declined 0.4% to $57.34 per ounce, following a 3.6% drop in the previous session.
Platinum and palladium also traded lower.
