Gold heads for weekly drop as Gulf attacks reinforce rate-hike bets

Gold edged lower on Friday and was on track for a weekly fall on concerns that escalating U.S.-Iran tensions could fuel inflation and keep the Federal Reserve on a hawkish monetary policy path. Spot gold fell 0.1% to $4,115.79 per ounce by 0601 GMT and was headed for a 1.4% weekly decline. U.S. gold futures for August delivery slipped 0.4% to $4,124.90. "Gold is in consolidation mode today following yesterday's gains, with traders hesitant to commit to further upside amid the prevailing uncertainty over US-Iran relations," said Tim Waterer, chief market analyst at KCM Trade. Oil prices were on track for a weekly gain as the U.S. and Iran continued to trade strikes, with Iranian armed forces launching attacks on U.S. military infrastructure in Gulf states on Thursday following U.S. strikes on Iran's southern coastal and eastern provinces. The latest round of strikes has fuelled inflation concerns and reinforced the probability of the Fed raising rates this year. Markets are pricing in a 63% chance of a September rate hike, up from around 54% a week earlier, according to CME's FedWatch tool. While gold is typically seen as a hedge against inflation, it loses its appeal as a non-yielding asset in a high-interest-rate environment. "I expect gold will continue to attract buyers on dips as long as oil stays around current levels. However, any sharp spike in oil could reignite inflation and interest rate fears, which would be to gold's detriment," Waterer said. Minutes of the Fed's June meeting, released earlier this week, showed growing concerns among policymakers about elevated inflation. HSBC cut its average gold price forecasts for 2026 and 2027 on Thursday, citing a hawkish shift in U.S. monetary policy expectations and a stronger dollar. Elsewhere, spot silver rose 0.3% to $60.19 per ounce, platinum gained 1.4% to $1,632.99 and palladium climbed 1.9% to $1,270.54. All three metals were on track for a weekly loss.