Gold Set for Sharp Weekly Drop

Gold steadied above $4,000 an ounce on Friday but remained on track to lose nearly 5% for the week as hawkish signals from the US Federal Reserve outweighed support from the impact of US-Iran peace efforts. On Thursday, bullion rebounded modestly after the latest US PCE inflation data came in broadly in line with expectations, easing fears of imminent Fed rate hikes and pushing the dollar and Treasury yields lower. Even so, markets are pricing in an 80% chance of a Fed rate hike in December following last week's hawkish pause, while the probability of a September increase stands at around 63%. Meanwhile, oil prices continued to retreat and have returned to pre-conflict levels as progress in US-Iran peace negotiations eased concerns over Middle East supply disruptions and further reduced inflation worries.

Gold traded above $4,000 per ounce on Thursday, rebounding from earlier losses as a weaker US dollar and lower Treasury yields provided support after the latest US PCE inflation report came in broadly in line with expectations. While inflation remains well above the Fed’s 2% target, the data eased concerns about a sharper-than-expected acceleration in price pressures. Meanwhile, oil prices continued to retreat and have now returned to levels seen before the outbreak of the Iran conflict, further alleviating inflation worries. As a result, traders pared back expectations for additional monetary tightening, with the probability of a Fed rate hike in September falling to 63% from 68% the previous day. Despite Thursday’s rebound, gold remains down roughly 5% year-to-date and nearly 20% below its January record high, reached before the escalation of the conflict involving Iran.

Gold weakened below $4,000 an ounce on Thursday, sliding toward its lowest levels in almost eight months as a stronger dollar and growing expectations of Federal Reserve rate hikes continued to weigh on prices. The US dollar rose to its highest level in more than a year against a basket of major currencies, making dollar-denominated commodities such as gold costlier for holders of other currencies. Last week, the Fed kept interest rates unchanged but signaled increasing support for tighter monetary policy, with Chair Kevin Warsh indicating his commitment to bringing inflation under control. Markets are now pricing in a possible rate hike in September, with additional increases potentially following before year-end. Those expectations have overshadowed the supportive effect of progress in US-Iran peace negotiations, which has driven oil prices back to pre-conflict levels and significantly reduced inflationary pressures.