Gold prices on track for weekly loss as Iran war spurs inflation fears

Spot gold prices pared back gains on Friday, keeping the yellow metal on track for a second straight week of losses, amid growing concerns over energy-fueled inflation from the U.S.-Israel war on Iran. 

Bullion saw some relief on Friday as the dollar and oil stalled their advance. The U.S. Treasury Department announced more waivers of some sanctioned Russian crude to offset supply shocks from Iran.

Spot gold rose 0.1% to $5,085.15/oz by 10:39 ET (14:39 GMT), while gold futures fell 0.8% to $5,086.20/oz. Spot gold was set to lose about 1.8% this week. 

Even though gold is typically seen as a safe haven in times of geopolitical crisis, the yellow metal’s shine has subsequently been marred by a stronger dollar, which can make bullion more expensive for overseas buyers.

Much of the oil and gas passing through the Strait of Hormuz is used in a range of products, such as fertilizer and plastics, meaning that the sudden uptick in their prices could lead to heavy inflationary pressures in economies around the world.

These fears may translate into central banks, including the Federal Reserve, reconsidering possible interest rate cuts in the near-term. Higher borrowing costs may attract more foreign investment, bolstering the appeal of the U.S. dollar. The dollar index, which track the greenback against a basket of rival currencies, has jumped as the conflict has intensified.

Gold has been trading within a $5,000-$5,200/oz range since the onset of the war in late February. While the yellow metal was still trading up for the year, yet has retreated from a record high near $5,600/oz notched earlier this year. 

ANZ analysts said in a note that while gold had lagged amid a storm of near-term headwinds, the yellow metal still remained “a key portfolio diversifier, providing protection against a broad range of macro and geopolitical uncertainties.” 

Other precious metals rose on Friday and were nursing a muted performance for the week. Spot silver rose 0.7% to $84.3275/oz, while spot platinum rose 0.5% to $2,143.21/oz. 

PCE inflation data in focus

Markets were also parsing through fresh U.S. data for more cues on the world’s largest economy. 

A gauge of underlying U.S. inflation closely monitored by the Federal Reserve rose by 3.1% in the twelve months to January, in line with expectations and slightly faster than December’s pace of 3.0%. Removing volatile items like food and fuel, the so-called "core" personal consumption expenditures price index increased by 0.4% month-on-month in January, matching both analysts’ estimates and December’s rate.

The headline PCE reading stood at 2.8% year-on-year, compared to projections that it would equal January’s rate of 2.9%. Month-on-month, the reading was 0.3%, meeting expectations and cooling versus December.

The Fed has set a 2% target for inflation. Policymakers are due to take their next interest rate decision at the end of a two-day meeting next week, with markets widely betting that borrowing costs will be held at a range of 3.5% to 3.75%.