Gold prices rebounded on Friday but remain set for their biggest weekly loss in six weeks, with the metal down over 3% for the week as of latest data. Spot gold was trading flat at $3,970.35 per ounce by 1332 GMT, hovering near its lowest level since July 1, while US gold futures for August delivery were down 0.5% at $3,973.10 per ounce. Despite the Friday recovery, gold had earlier dropped to an intraday low of $3,977 while silver hit $55.65, with Comex gold futures falling another $74 after declining $18 per troy ounce in the previous session. After declining $18 per troy ounce in the previous session, Comex gold futures fell another $74 to an intraday low of $3,977 per ounce, slipping below the key $4,000 mark. A break below $3,955 could drag the yellow metal to its lowest level in nearly eight months, while silver, which is typically more volatile than gold, dropped another $1.80 per troy ounce to $55.65, its lowest level since early December. The precious metals, which had attracted safe-haven buying earlier this month as geopolitical tensions briefly eased, came under renewed selling pressure after hostilities between the US and Iran escalated.
Following the latest inflation data, markets sharply pared expectations of a July rate hike, with the implied probability falling to around 16%. This represents a significant shift from earlier expectations, as traders had ramped up bets on a September U.S. interest rate hike, with CME Group's FedWatch Tool showing the probability rising to around 76% from 57% a week ago. According to the CME FedWatch Tool, traders are now pricing in a 53.3% probability of a US interest rate hike in September. Fed Chairman Kevin Warsh this week declared his determination to bring inflation down without hinting at how, even as colleagues publicly laid out their own views on the economic outlook and interest rates. Fed Vice Chair Philip Jefferson said on Thursday that he would be open to raising interest rates if inflation does not show meaningful improvement in the near term. Chris Gaffney, president of World Markets at EverBank, noted that while recent economic data had slightly reduced expectations of an immediate rate hike, rising global interest rates and higher energy costs could encourage the Federal Reserve to adopt a more hawkish stance in the coming months.
The United States intensified its military campaign against Iran for a fifth consecutive day, targeting bridges and an airport in Iran, while Tehran responded with strikes on US military bases across the Middle East. The geopolitical tensions sent energy prices sharply higher, with Brent crude oil rising more than 14% this week as the escalating U.S.-Iran conflict stoked supply concerns. Iran warned on Thursday that it would "crush" key targets in the Middle East if the US follows through on threats to target the country's infrastructure, according to CNBC. The renewed hostilities have effectively derailed the interim truce and raised fears of a return to a full-scale regional conflict. The conflict, now in its fifth month, has driven up energy prices and fanned inflation risks, with oil prices jumping about 12% so far this week as the escalating U.S.-Iran conflict stoked supply concerns. Although gold is traditionally considered a hedge against inflation and geopolitical uncertainty, higher interest rates tend to reduce its appeal because the metal does not generate interest income.
Spot gold was trading flat at $3,970.35 per ounce by 1332 GMT, hovering near its lowest level since July 1, while the US dollar extended gains for a second consecutive session, making dollar-denominated bullion more expensive for overseas buyers. The weakness extended across the precious metals market, with spot silver falling 0.8% to $55.05 per ounce, platinum declining 3.3% to $1,563.49, and palladium slipping 1.5% to $1,230.42. All three metals were also on track to post weekly losses. Gold has declined around 25% since the US-backed conflict with Iran began in late February, as investors increasingly worry that war-driven inflation could force central banks to maintain tighter monetary policy for longer. Christopher Wong, a strategist at Oversea-Chinese Banking Corp, noted that the slight bounce on Friday may be a reflection of dip-buying, but it's too soon to call a turnaround in the market. "Upside in gold requires oil prices to ease off further and hawkish rhetoric to dial down," he added.
Given the volatility ahead of the US Federal Reserve's July policy meeting, investors may consider investing in gold through a staggered SIP approach rather than making lump-sum investments. Goldman Sachs believes the longer-term investment case for gold remains intact, noting that gold's share in private investment portfolios remains relatively low and recent geopolitical developments, including tensions involving Iran, could encourage greater diversification into the precious metal beyond central bank purchases. Gupta noted that gold and silver play different roles in an investment portfolio, with gold primarily considered a store of value and defensive asset, while silver derives significant demand from industrial sectors such as solar energy, electronics and electric vehicles. She added that any allocation to silver should remain limited and be viewed as a tactical investment rather than a core portfolio holding. Ravi Singh, Chief Research Officer at Master Capital Services, said MCX gold continues to remain in a weak technical setup, with gold trading below its 21-day and 55-day exponential moving averages.
