As of 12:35 AM Moscow time, XAU/USD was down 0.2% at $4,042.72 per ounce, while gold futures were little changed at $4,044.92.
Gold prices edged lower on Friday, but the metal remains on track to end a two-week losing streak, as escalating tensions in the Middle East support prices despite growing expectations that the Federal Reserve may keep interest rates high for longer.
As of 12:35 AM Moscow time, XAU/USD was down 0.2% at $4,042.72 per ounce, while gold futures were little changed at $4,044.92. XAG/USD fell 0.3% to $57.47 per ounce, and XPT/USD was down 0.5% at $1,589.67.
Middle East conflict heightens inflation fears ahead of Fed meeting
Gold was little changed after falling nearly 2% in the previous session, but has gained 0.8% this week, posting its first weekly gain in three weeks.
Tensions in the Middle East escalated after Iran-aligned Yemeni Houthi rebels attacked two Saudi oil tankers in the Red Sea. In response, President Donald Trump warned that Washington would hold Iran responsible for any future Houthi attacks on commercial shipping and threatened further military action against Tehran.
The geopolitical situation remained tense after The New York Times reported that Iran rejected a US-backed ceasefire, dampening hopes for a quick de-escalation despite ongoing diplomatic efforts. The renewed escalation contributed to higher oil prices, while stronger-than-expected US labor market data fueled concerns that the Federal Reserve could maintain tight monetary policy. Initial jobless claims unexpectedly fell to 187,000, a multi-decade low, pushing the yield on the benchmark 10-year Treasury note to its highest since January 2025.
Markets continue to price a quarter-percentage-point rate hike at the Fed's upcoming meeting at about 34%, following stronger-than-expected labor market data and rising energy prices, which fueled inflation concerns.
Nomura analysts expect the Fed to leave interest rates unchanged, and Chairman Kevin Warsh is unlikely to provide significant guidance given the lack of updated economic forecasts and a scatter plot at the July meeting.
IG sees broader recovery intact despite latest pullback
Tony Sycamore, senior market analyst at IG, said gold's latest decline reflected combined pressure from rising Treasury yields, a stronger US dollar, and deteriorating risk sentiment amid renewed tensions in the Middle East.
The USD index was little changed after retreating from the previous session's levels, providing only limited support to gold as rising Treasury yields remain the main headwind. Sycamore noted that the latest pullback hasn't significantly changed gold's broader technical outlook: the metal continues to show signs of forming a base above the late-June low of $3,942.
A sustained move above the early-July high of $4,202 would strengthen the bullish case and pave the way for a recovery toward the 200-day moving average near $4,495.
Sycamore said IG maintains a cautiously optimistic outlook as long as prices hold above the late-June support level, although the near-term direction will likely be determined by next week's Fed decision and developments in the Middle East.