Gold Dips as Oil Surge Fuels Fed Tightening Fears

Gold edged lower to $4,100 an ounce on Friday, ending the week down about 1.5%, as rising crude oil prices and escalating US-Iran tensions raised concerns that the Federal Reserve may maintain tight monetary policy for longer. Oil surged 5% this week after renewed strikes between US and Iranian forces, heightening inflation fears and prompting markets to price in a near 60% chance of a September Fed rate hike. Investors will closely watch US inflation data due next week and Fed Chair Kevin Warsh’s testimony for further policy cues. Minutes from the Fed’s June meeting revealed growing inflation concerns, with some policymakers having favored a rate hike before rates were left unchanged. Meanwhile, gold faced a wide discount in India this week due to price volatility, while demand in China remained steady. China’s central bank reported its largest monthly increase in gold reserves in over 2-1/2 years in June.

Gold steadied above $4,100 an ounce on Friday and was on track to finish the volatile week little changed, as investors continued to assess developments in the Middle East and their potential impact on inflation and monetary policy. Reports indicated that the US and Iran will continue peace talks despite a recent escalation in hostilities that disrupted energy flows through the Strait of Hormuz and renewed concerns over inflation. US forces carried out strikes on targets in Iran over two days in response to recent attacks on vessels in Hormuz, prompting retaliatory strikes by Tehran on US bases across the region. Markets continue to expect the Federal Reserve to raise interest rates at least once this year, although the policy outlook remains highly uncertain. Meanwhile, New York Fed President John Williams said that, among the factors driving inflation in the US, he is most focused on demand fueled by artificial intelligence.

Gold climbed above $4,100 an ounce on Thursday, supported by a softer US dollar, though gains were capped as investors remained focused on escalating tensions in the Middle East and their implications for inflation and monetary policy. The US military said it carried out fresh strikes on Iran on Wednesday, prompting retaliatory attacks on Kuwait and Bahrain and heightening regional tensions. However, US President Donald Trump said Iran had reached out seeking a deal, tempering fears of a broader escalation. Meanwhile, minutes from the Federal Reserve's latest meeting showed growing concern over inflation, with several policymakers seeing a case for a rate hike before rates were ultimately left unchanged last month. Markets are now pricing in a 63% chance of a September rate hike. Separately, HSBC lowered its average gold price forecast to $4,560 for 2026 from $4,864, and to $4,925 for 2027 from $5,000.