Gold Prices Slide for Second Week; UBS Predicts Further Drop

Gold prices are on track for their second consecutive weekly decline as market expectations solidify around further interest rate hikes. Ahead of next week's U.S. Federal Reserve meeting, gold, a non-yielding asset, is facing pressure. UBS has issued a new forecast, predicting that short-term gold prices will remain under pressure and could potentially retreat to the $3,850 to $4,000 per ounce range.

Spot gold saw a slight increase of 0.3% to $4,227.17 per ounce on Friday, but the week's cumulative decline stands at 2.3%. U.S. gold futures rose 3% to settle at $4,238.80 per ounce. Analysts note a degree of skepticism in the market, with expectations that inflation will persist despite potential drops in oil prices.

Reports of a potential memorandum of understanding between the U.S. and Iran to end the conflict, which could be signed as early as Sunday, led to a drop in oil prices. However, Iran's Fars News Agency has quoted sources close to the negotiations denying these speculations. Since the outbreak of conflict in late February, gold has been under pressure due to concerns that rising oil prices would fuel inflation, prompting central banks to maintain high interest rates.

While investors often view gold as a hedge against inflation, higher interest rates generally put pressure on non-yielding assets like gold. According to CME's FedWatch tool, traders are currently pricing in a 57% chance of a U.S. interest rate hike by December. UBS has revised its gold outlook downward, warning that the Federal Reserve's delayed rate cuts will put short-term gold prices under pressure, with a potential fall to the $3,850-$4,000 per ounce range.

In other precious metals, spot silver rose 1.2% to $68.14 per ounce, and palladium gained 0.7% to $1,281.04 per ounce, both closing the week higher. Platinum, however, fell 0.8% to $1,706.90 per ounce, ending the week with a loss.

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I think inflation will continue for a while, even if oil prices do fall. We have heard this script before, so there is some skepticism in the market.