Gold heads for biggest weekly loss in a month and a half on inflation fears

Gold rose 0.5 percent in spot trading to $3,988.20 per ounce by 03:13 GMT, after hitting its lowest level since July 1 earlier in the session.

However, the yellow metal has fallen 3.2 percent since the start of the week, marking its largest decline since early June, as the impact of Middle East tensions overshadowed support from U.S. June inflation data released this week, which came in lower than expected.

Tim Waterer, chief market analyst at KCM Trade, said, “Even with moderate consumer price index and producer price index figures, the rise in oil prices this week means traders simply couldn’t celebrate the lower inflation numbers.”

Iran and the United States exchanged intense strikes on Thursday, escalating tensions over the past week that have significantly undermined a ceasefire agreement reached last month.

Oil prices have surged about 12 percent since the start of the week due to limited oil flows through the Strait of Hormuz, and Tehran has asked the Houthi rebels in Yemen to prepare to close the Red Sea export route.

Gold, which yields no return, typically struggles in a rising interest rate environment, as investors are drawn to assets offering better yields.

According to CME Group’s FedWatch tool, traders currently price in a 73 percent probability of a rate hike in December.

In other precious metals, silver fell 0.5 percent in spot trading to $55.22 per ounce, platinum dropped 0.7 percent to $1,605.62, and palladium declined 0.4 percent to $1,244.86.