Gold Softens on Prospects of Fed Rate Hikes as Brent Tops $100

Gold prices continued their decline on Friday, following a significant drop in the previous session. The resurgence of Brent crude oil above $100 a barrel has intensified inflation worries, bolstering expectations for further interest rate hikes ahead of the Federal Reserve's upcoming policy meeting.

Spot gold saw a 0.5% decrease, settling at $4,027.54 per ounce. This brings prices down by more than $130 from a peak reached just two days prior. Despite the recent downturn, bullion remains on track for a modest weekly gain of 0.3%. Gold futures for August delivery also traded lower, down 0.5% at $4,029.60.

Brian Lan, Managing Director at GoldSilver Central, anticipates continued volatility in the short term. He noted that gold has been trading within a narrow range between $3,980 and $4,170 for weeks, with significant buying interest emerging whenever prices approach $4,000 or dip slightly below.

The market is also reacting to geopolitical tensions, as U.S. President Donald Trump pledged "major military punishment" against Iran and its Houthi allies after Yemeni fighters attacked two Saudi oil tankers in the Red Sea. This incident contributed to Brent crude's sharp 7% surge on Thursday, pushing it past $100 a barrel for the first time since May.

While gold is traditionally viewed as a hedge against inflation, its attractiveness diminishes in a high-interest-rate environment due to its nature as a non-yielding asset. Market participants are now keenly focused on the Federal Reserve meeting next week, where policymakers are widely expected to hold rates steady. However, traders are pricing in an approximately 81% probability of a rate increase in September, according to the CME FedWatch Tool. The European Central Bank also maintained its interest rates as expected but left the door open for a potential September hike.

In other precious metals, spot silver was down 0.4% at $57.48 per ounce, though still poised for a weekly gain of 3%. Platinum fell 0.9% to $1,585.50, and palladium dropped 1.5% to $1,238.55, with both on track for a weekly decline.

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In the short term, we expect more volatility... gold has been trading between $3,980 all the way to about $4,170 and has been stuck in this way for weeks. Every time prices hit close to $4,000 or slightly below, we see that there will be big buyers coming to buy it back up.