Gold on track for biggest weekly loss in six weeks as Iran war fans inflation worries

[BENGALURU] Gold was on track for its biggest weekly loss in six weeks on Friday (Jul 17), as escalating US-Iran clashes lifted oil prices, adding to inflationary pressures and strengthening the case for higher US interest rates.

Spot gold was up 0.5 per cent at US$3,988.20 per ounce by 0313 GMT, having touched its lowest since Jul 1 earlier in the session. US gold futures for August delivery were steady at US$3,992.

The metal, however, has lost 3.2 per cent so far this week, its largest decline since Jun 1, with the ongoing Middle East tensions outweighing support from softer June US inflation figures released on Jul 14.

“Even with tamer consumer price index and producer price index figures, the oil price spike this week meant traders simply couldn’t celebrate the cooler inflation numbers,” said Tim Waterer, chief market analyst at KCM Trade.

“Geopolitical risks in the Middle East are still present, with inflation and yield concerns being the dominant forces holding gold back.”

Iran and the US exchanged intensifying fire on Thursday in a week-long escalation that has largely unravelled June’s truce.

Oil prices have jumped about 12 per cent so far this week due to limited oil flows out of the Strait of Hormuz, with Teheran asking the Houthi movement to stand ready to shut the Red Sea export route.

The surge in oil prices risks reigniting inflation worries and increasing the likelihood of interest rate hikes.

Non-yielding gold typically struggles in a high-interest-rate environment as investors gravitate toward assets that offer better returns.

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Dallas Federal Reserve president Lorie Logan became the first of Fed chairman Kevin Warsh’s new colleagues to call publicly for a rate hike.

Fed vice-chair Philip Jefferson also suggested he would be open to raising rates if there is no near-term improvement in inflation.

Traders are currently pricing a 73 per cent chance of an interest rate hike in December, according to the CME FedWatch Tool.

Elsewhere, spot silver fell 0.5 per cent to US$55.22 per ounce, platinum lost 0.7 per cent to US$1,605.62 and palladium eased 0.4 per cent to US$1,244.86. All three metals were headed for a weekly loss. REUTERS