Gold Suffers Steepest Weekly Drop in Six Weeks Amid Dollar Strength and Inflation Fears

Gold prices experienced their most significant weekly decline in six weeks, despite a modest increase on Friday, July 17. The precious metal's value has been under pressure from a strengthening U.S. dollar and growing concerns about global inflation, which are contributing to rising global interest rates. This environment makes non-yielding assets like gold less attractive to investors.

Spot gold rose 1% on Friday, reaching $4011.29 per ounce, but still registered a weekly decrease of approximately 2.6%. U.S. gold futures for August delivery also closed higher, up 0.7% at $4018.80 per ounce. The dollar's continued strength makes gold more expensive for international buyers, further dampening demand.

Chris Gaffney, president of global markets at EverBank, attributed the recent sell-off primarily to the combined effect of a stronger dollar and heightened global inflation worries, which collectively drive up global interest rates. Geopolitical events, such as the U.S. expanding its bombing operations in Iran and Iran's retaliatory attacks on U.S. military bases, are also playing a role in market volatility. Since late February, when the U.S. initiated actions against Iran, gold prices have fallen about 25% as markets anticipated that inflation pressures from the conflict would lead to prolonged high interest rates.

While gold is traditionally seen as a hedge against inflation, rising interest rates typically put downward pressure on the metal. Gaffney noted that recent data has reduced the likelihood of the Federal Open Market Committee (FOMC) raising rates at its next meeting, but global rates continue to climb. He suggested that rising oil prices might also prompt the Federal Reserve to adopt a more hawkish stance on U.S. interest rate policy. Traders currently estimate a 58% probability of a U.S. rate hike in September, according to CME's FedWatch tool.

Other precious metals also saw weekly declines. Spot silver rose 1% to $56.06 per ounce, platinum fell 1.4% to $1595.64 per ounce, and palladium remained flat at $1249.63 per ounce. All three metals closed the week lower.