Gold is heading for its steepest weekly loss since early June, with the precious metal sliding below the psychologically important $4,000 mark despite a sharp escalation in Middle East hostilities. After closing at $3,969.41 on Thursday, spot gold was hovering near $3,999.00 on Friday, representing a weekly decline of 3.12%. The yellow metal now stands just 2.5% above its 52-week low from October last year — a stark illustration of how dramatically sentiment has shifted since the record highs seen in January.
Paradoxically, the very factor that would typically drive gold higher — a geopolitical crisis — is now amplifying the headwinds. The intensifying conflict between the United States and Iran has sent oil prices surging roughly 10% over the past week, reigniting inflation fears and prompting traders to reassess the Federal Reserve’s policy path. For the sixth consecutive night, U.S. forces struck targets inside Iran on Friday, hitting bridges, port facilities and power infrastructure in cities including Bandar Abbas and Chabahar. Tehran retaliated with strikes on U.S. installations in Qatar, Kuwait, Bahrain and Syria, while the Strait of Hormuz is now largely blocked and Iran has threatened to close the Bab al-Mandeb strait as well. A previously agreed ceasefire is effectively dead, though a White House spokeswoman said the U.S. remains in talks with Iran.
The oil-price jump is fuelling expectations that the Fed could raise interest rates again rather than cut them — a scenario that typically weighs on non-yielding assets like gold. Fed Chair Kevin Warsh warned during a hearing that the battle against inflation is far from over, dismissing softer June consumer and producer price data as “imperfect measures” and flagging persistent pressure from services and housing costs, as well as potential price effects from AI-related investment. Vice Chair Philip Jefferson signalled openness to a rate increase if inflation does not continue to moderate, explicitly citing the Middle East conflict, tariffs and AI as risk factors. Dallas Fed President Lorie Logan echoed a similar tone. Market pricing now implies a roughly 75% probability of a 25-basis-point rate hike by December, while the probability of a move as soon as September stands at around 51%, up sharply from earlier estimates.
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The hawkish turn has overshadowed gold’s traditional role as a geopolitical hedge. A stronger dollar and rising bond yields have added to the pressure, increasing the opportunity cost of holding the metal. Other precious metals have also stumbled, with silver and platinum dipping before staging modest intraday recoveries, and analysts expect the group to remain under pressure in the coming week.
Not all market participants are abandoning the bull case. Bank of America recently cut its year-end gold target to $4,360 and warned of a possible retreat into a zone between $3,702 and $3,605. On the technical side, key support sits at $3,942.50; a break below that level could open the door to $3,900 and, in a worst-case scenario, $3,500. Resistance levels are seen at $4,000, $4,070 and $4,200. Meanwhile, a Fidelity fund manager named Samson expects the metal to recover by 2027. More immediately, gold’s trajectory will hinge on whether the U.S.-Iran conflict escalates further and whether the Fed maintains its restrictive rhetoric at its July meeting.
Providing a structural counterweight to the short-term selling pressure, central banks continue to accumulate gold. A World Gold Council survey of 74 central banks found that 45% intend to increase their gold reserves within a year — the highest share since the survey began in 2018. Only one central bank plans to reduce its holdings. This long-term demand contrasts sharply with the volatility seen in the futures markets and suggests that institutional buyers are stepping in as prices dip near $4,000. For now, however, the competing forces of oil-driven inflation fears and geopolitical uncertainty will keep the market on edge until the next decisive move from Washington — either on the battlefield or at the Fed.
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