(Bloomberg) — Gold fell on Friday, putting it on pace for its second weekly decline as the war in the Middle East kept oil prices above $100 a barrel, underpinning global inflationary pressures.
Bullion dropped as much as 1.4%, retreating to levels near $5,000 an ounce while the dollar strengthened. Gold’s upward momentum has stalled since the US-Israeli war with Iran started nearly two weeks ago, with no resolution in sight. President Donald Trump has said the US stepped up strikes on Iran to unprecedented levels, suggesting there will be no letup in a war that’s upending energy flows and global markets.
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“The gold price continues to fail to benefit from the geopolitical crisis,” Barbara Lambrecht, commodity analyst at Commerzbank Research, said in a note Friday. “After all, with oil and gas prices rising significantly again this week, the risks of inflation are also increasing. This could force central banks to take countermeasures.”
Higher energy prices and rising inflationary concerns have greatly reduced expectations that the Federal Reserve and other central banks will cut interest rates. The latest US consumer spending data, released Friday, showed spending barely rose in January due to weaker-than-expected economic growth. The report adds to concerns that price pressures were building even before the attacks on Iran.
Meanwhile, US consumer sentiment has declined to a three-month low as fears mounted in recent weeks about the impact of gasoline prices from the conflict.
Traders now see virtually no chance of a rate cut at next week’s Fed meeting and only an 80% chance of a reduction this year. Higher borrowing costs typically weigh on precious metals, which don’t pay interest. A sustained pickup in inflationary pressures could delay a resumption of rate cuts at a time when Trump continues to demand them.
Bullion has still gained around 16% this year, largely holding above the $5,000-an-ounce threshold.
Spot gold fell to $ an ounce as of in New York, putting it on track for a 3% weekly decline. That would be the first back-to-back weekly decline since November. Silver slid to $ an ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index rose and was on track for a weekly gain.