Gold heads for weekly drop as Iran clash spurs oil surge and Fed hikes
Escalating military exchanges between the U.S. and Iran are lifting oil prices and reviving expectations of Federal Reserve rate hikes, dragging gold toward its worst weekly drop in six weeks.
Spot gold rose 0.5% to $3,988.57 per ounce in early trading after hitting its lowest level since July 1, while U.S. August futures held steady at $3,992.70. Despite the overnight bounce, the precious metal is on track for its largest weekly decline in six weeks. The selloff reflects a rapid repricing of interest rate expectations driven by surging energy costs.
The immediate trigger for the market shift is the collapse of last month's U.S.-Iran truce, with the two nations exchanging intensifying fire throughout the week. The escalation has driven crude prices up approximately 12% over the same period as traders price in potential supply disruptions. For gold investors, that spike in oil stokes inflation fears and increases the likelihood of tighter monetary policy, which typically pressures non-yielding assets.
Federal Reserve officials are already responding to the shifting inflation backdrop. Dallas Federal Reserve President Lorie Logan became the first of Fed Chairman Kevin Warsh's new colleagues to publicly call for a rate hike. Kansas City Fed President Jeff Schmid reinforced this stance, stating that inflation "is proving persistent across a broad range of goods and services" and remains the central focus of monetary policy due to a stable labour market.
Their hawkish commentary is supported by underlying economic strength. The number of Americans filing for unemployment benefits fell last week, and U.S. retail sales edged higher in June. While lower gasoline prices weighed on service station receipts, the broader consumption picture remains intact. Investors are now looking ahead to upcoming data releases, including U.S. housing starts, import prices, industrial production, and preliminary July consumer sentiment.
The prospect of higher borrowing costs dragged down the wider precious metals complex. Spot silver added 0.2% to $55.60, palladium rose 0.4% to $1,254.62, and platinum dipped 0.1% to $1,616.10, but all three are heading for weekly losses.
Outside the U.S., China is expected to rely on accelerating already-budgeted national infrastructure projects to stabilize economic growth this year, according to economists and a government adviser, reducing the likelihood of a large-scale fiscal stimulus package. Markets will parse June figures for total social financing, M2 money supply, and new yuan loans for confirmation. Separately, Britain sanctioned 11 individuals and entities over illicit gold and finance networks funding the war in Sudan.
