Inflation Pressures and Middle East Tensions Drive Gold Prices Down

SadaNews Economy - Gold prices fell on Friday and are set to register a weekly loss, amid rising concerns about persistent inflation pressures and increasing likelihood of tightening U.S. monetary policy, coinciding with the stalling of efforts to contain tensions in the Middle East.

Gold prices in spot transactions dropped by 0.7 percent to reach $4,442.94 per ounce by 04:02 GMT, resulting in the precious metal incurring nearly 2 percent losses since the beginning of the week. U.S. gold futures for August delivery fell by 0.8 percent to $4,469.10 per ounce, according to Reuters.

The pressure on gold came after escalating doubts regarding the prospects for a permanent settlement to the conflict in the region, following Hezbollah's rejection of a new ceasefire agreement in Lebanon, while Israel confirmed it would not withdraw its forces from Lebanese territory, undermining U.S. President Donald Trump's efforts to halt fighting and create conditions for a broader agreement with Tehran.

Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, stated that declining optimism regarding the possibility of reaching a resolution to the Iranian dispute has contributed to the pressure on gold prices, adding that markets are increasingly inclined to price in a more tightening monetary environment, which poses an additional negative factor for the yellow metal.

In the U.S., comments from Federal Reserve officials have bolstered expectations for continued monetary tightening.

Kansas City Federal Reserve President Jeffrey Schmid pointed out that the U.S. central bank faces two main options: maintain interest rates at current levels for a longer period or resort to raising them again to contain inflation, which has remained above the target level for several years.

For her part, San Francisco Federal Reserve President Mary Daly confirmed that the path of interest rates will depend on upcoming economic data, indicating that current monetary policy is "in a good place," and that the central bank is ready to move as economic conditions dictate.

Although gold is traditionally seen as a hedge against inflation, rising interest rates diminish its investment appeal as it does not yield returns for its holders compared to interest-bearing assets.

Current market pricing shows an increase in bets on U.S. interest rate hikes before the end of the year, with the FedWatch tool indicating a 51 percent probability of another rate increase by December.

Investors are now awaiting the release of U.S. non-farm payroll data for May later today, which could provide crucial indicators about the direction of the U.S. economy and the Federal Reserve's monetary policy course over the coming months.

In other precious metals markets, silver dropped in spot transactions by 1.6 percent to $72.66 per ounce, while platinum fell by 1.1 percent to $1,879.42, and palladium decreased by 1.6 percent to $1,299.23.

All precious metals are heading towards ending the week with losses, amid the dominance of concerns related to interest rates and geopolitical developments on investor sentiment.