Gold prices are heading for their steepest weekly decline in more than four months on Friday, pressured in part by rising oil prices and growing inflation concerns.
At 5:00 PM WIB, spot gold (XAU/USD) fell 0.1% to $4,022.53 per troy ounce, putting the precious metal on track for a 3.4% weekly loss. Meanwhile, gold futures declined 0.6% to $4,037.15 per troy ounce, heading toward a 3.5% weekly drop.
Rising Oil Prices Fuel Inflation Concerns
Brent crude futures, the global oil benchmark, climbed again and touched $114 per barrel for the first time since May. Growing speculation over escalating Middle East tensions has raised concerns about further disruptions to supply flows from the major oil-producing region.
Media reports this week indicated that the United States and Israel were considering plans for new strikes against Iran following the US midterm elections in November. Iran has warned that it would retaliate against any attacks, potentially targeting economic and civilian infrastructure around the Persian Gulf.
Meanwhile, Iran-backed Houthi militants in Yemen have continued targeting locations in neighboring Saudi Arabia. On Thursday, state-owned oil giant Saudi Aramco reportedly ordered the evacuation of its headquarters in Dhahran, near Bahrain.
Brent crude has gained more than 3% over the week, adding to inflationary pressures ahead of next week's closely watched Federal Reserve policy meeting.
Federal Reserve Policy Weighs on Gold
Although the Federal Reserve is widely expected to hold interest rates steady at its October 27–28 meeting, a rate hike in December is already being anticipated by markets.
Several Fed officials have downplayed the urgency of an immediate rate increase. However, policymakers have emphasized the need to bring inflation back toward the central bank's 2% target.
Higher interest rates can weigh on gold by increasing the opportunity cost of holding a non-yielding asset. If rising oil prices keep inflation elevated and reinforce expectations of tighter monetary policy, gold could face further downward pressure.
Gold Fails to Benefit From Safe-Haven Demand
Gold has also failed to benefit from the recent sell-off in technology stocks and the shift toward the relative safety of US Treasury bonds, according to analysts at ING.
In a research note, the analysts observed that investors appeared more concerned about rising oil prices and their implications for inflation and, ultimately, central bank policy.
“The gold market appears to be focusing more on higher oil prices and what they mean for inflation — and ultimately central bank policy,” the analysts added.
For gold traders, the combination of rising energy prices, inflation risks, and expectations surrounding the Federal Reserve's next policy decisions remains a key factor to watch. Unless inflation concerns ease or interest rate expectations become more supportive, gold may continue to face pressure as it heads toward the end of the week.