Gold (GLD) prices are heading toward a weekly decline as investors assess renewed fighting in the Middle East and the possibility that stronger inflation could keep U.S. interest rates higher for longer. Bullion fell as much as 0.7% to trade below $4,100 an ounce and was on track for a weekly loss of about 1.7%. Technical discussions between Washington and Tehran continued after two days of clashes as both sides sought a permanent end to their months-long conflict. The renewed strikes placed additional pressure on an interim peace agreement signed last month and increased uncertainty around the movement of oil and other important commodities through the Strait of Hormuz.
The latest escalation could create a difficult backdrop for gold because higher energy prices may add to inflation and increase pressure on the Federal Reserve to maintain tighter monetary policy. Minutes from the Fed's June meeting showed that some policymakers believed there was a case for raising interest rates, although officials ultimately left rates unchanged. Swap traders are now pricing a little over a 20% probability of a rate increase at the Fed's next meeting, down from more than 35% earlier in the week after President Donald Trump said the U.S.-Iran ceasefire was over. New Federal Reserve Chairman Kevin Warsh also announced the leadership of five task forces that will review important areas of central-bank policymaking. New York Fed President John Williams said he is particularly focused on inflationary demand linked to artificial intelligence, which could lead to higher interest rates if that demand continues.
HSBC Holdings NYSE:HSBC, a global banking group, said higher interest-rate expectations may already be largely reflected in the market but could still limit further gains in gold. James Steel, HSBC's chief precious-metals analyst, also said a strong U.S. dollar may create additional pressure on any bullion rally. HSBC reduced its average 2026 gold price forecast to $4,560 an ounce as investors continued to weigh the effects of dollar strength and tighter monetary policy. Gold has fallen by more than 20% since the Iran war began in late February as profit-taking ended a three-year rally and briefly pushed the metal below $4,000 for the first time since November. Spot gold later traded 0.4% lower at $4,106.84 an ounce in London, while silver declined 0.6% to $59.58, platinum was little changed, and palladium advanced.