Gold prices are heading for their second consecutive week of decline, despite a slight increase in Friday's session, as energy prices rose sharply due to the war in the Middle East weakening US interest rate cut prospects in the short term.
Spot gold prices fell 0.3% to 5.077.50 USD/ounce in this afternoon's trading session. Meanwhile, US gold futures for April delivery fell 0.1% to 5,100.20 USD/ounce.
The yield on 10-year US Treasury bonds decreased slightly, thereby partly increasing the attractiveness of gold, an asset that does not yield yields.
However, for the whole week, gold prices have fallen by more than 1%. Since the war began on February 28, this precious metal has fallen by more than 3%.
Mr. Tim Waterer, Head of Market Analysis at KCM Trade, said concerns about rising inflation and doubts about the possibility of the US Federal Reserve (Fed) cutting interest rates in the context of oil prices remaining at a high level are partly weakening the attractiveness of gold.
According to him, with the uncertainty related to the timing and scale of the conflict in the Middle East, gold will continue to be on the list of safe-haven assets closely monitored by investors.
Geopolitical tensions continue to escalate as Iran's Supreme Leader Mojtaba Khamenei declares Tehran will maintain the closure of the Strait of Hormuz as a lever for the US and Israel. This raises concerns about global energy supplies as well as risks to financial markets.
Oil prices have risen above $100 a barrel after attacks on oil tankers in the Persian Gulf and warnings from Iran, making the prospect of a rapid cooldown of the Middle East conflict fragile.
Amid strong oil prices, US President Donald Trump once again called on Fed Chairman Jerome Powell to cut interest rates.
However, according to CME Group's FedWatch tool, traders still expect the Fed to keep interest rates unchanged in the range of 3.5%–3.75% after the two-day policy meeting ended on March 18.
Although recent inflation data shows that the rate of price increase is still being controlled, the impact of war and the upward momentum of oil prices are still not fully reflected in economic data.
Investors are currently awaiting data on the US Personal Consumption Expenditures (PCE) index in January, expected to be released on Friday.
In the physical market, gold discounts in India this week have widened to their deepest level in nearly a decade due to weak demand and some traders evading import tax obligations. Meanwhile, tensions in the Middle East have boosted safe-haven demand for gold in China.
On other precious metals markets, spot silver prices fell 1% to 82.91 USD/ounce. Platinum prices fell 1% to 2,111.45 USD/ounce, while palladium also fell 1% to 1,603 USD/ounce.
