Gold prices dipped on Friday and were set for a weekly decline, as a stronger dollar and prospects of fewer U.S. interest rate cuts weighed on investor sentiment despite rising geopolitical risks in the Middle East.
In Dubai, gold rates pulled back, with 24-carat gold declining AED1.75 to AED404.25 and 22-carat gold losing AED1.75 to AED374.25. Additionally, 21-carat gold and 18-carat gold dipped AED1.5 to AED359 and AED307.5, respectively.
Globally, spot gold fell 0.57 percent to $3,354.49 as of 4:12 GMT, and was down 2.2 percent so far this week. Meanwhile, U.S. gold futures dipped 1.09 percent to $3,370.92.
Fed’s inflation concerns dampen gold’s appeal
Gold prices fell this week after the Federal Reserve held interest rates steady on Wednesday, and policymakers retained projections for two quarter-point rate cuts this year.
“Although the Fed has pencilled in two rate cuts for the year, it sees an upside risk to inflation from Trump’s tariffs over the upcoming months. If price pressures intensify too much, it might hinder the Fed’s path of monetary easing,” said Vijay Valecha, chief investment officer, Century Financial.
Macroeconomic developments, particularly steady yields and the U.S. dollar’s renewed strength, have not supported gold prices either. Rising inflation expectations and the Fed’s cautious stance have weighed on market expectations around the number of rate cuts this year, as the dollar was set to log its biggest weekly rise in over a month.
A stronger dollar makes gold prices more expensive for other currency holders.
“While the Fed’s inflation warning is a headwind for gold, the precious metal remains well-supported by geopolitical, fundamental, and other macro factors. The possibility of America’s involvement in the ongoing Israel-Iran tensions could bolster haven demand. Moreover, global economic uncertainty and strong central bank purchases remain noteworthy tailwinds,” added Valecha.
Middle East tensions escalate
Gold prices remained largely steady as the conflict in the Middle East intensified on Thursday, with neither Israel nor Iran having signalled an exit strategy. President Donald Trump will decide in the next two weeks whether the U.S. will get involved in the Israel-Iran air war, the White House said on Thursday, raising pressure on Iran to come to the negotiating table.
Meanwhile, Trump reiterated his calls for the Federal Reserve to cut interest rates, saying the rates should be 2.5 percentage points lower. Gold is considered a safe-haven asset during times of geopolitical and economic uncertainty. However, a higher interest rate environment dulls its appeal as it yields no interest.
“Gold, which back in April hit a record high at $3,500, has moved into a consolidation phase while awaiting the next potential bullish trigger. Despite the current lull, bullion continues to attract strong demand from central banks and long-term investors concerned about sovereign debt, inflation risks and the weakening U.S. dollar,” said Ole Hansen, head of commodity strategy, Saxo Bank.
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Other precious metals
As gold prices declined on Friday, the precious metals market was in the red. Spot silver fell 1.55 percent to $35.82, while platinum lost 1.78 percent to $1,284.12. In addition, palladium dipped 0.73 percent to $1,042.87, while copper fell 1.44 percent to $4.78.
