Gold prices moved modestly higher on Friday, although the precious metal remained on course for a weekly decline as investors assessed the likelihood of a diplomatic agreement between the United States and Iran and the implications for inflation and monetary policy.
By 05:29 ET (09:29 GMT), spot gold had gained 0.2% to $4,220.27 per ounce. Despite the uptick, bullion was still set to end the week more than 2% lower. Gold futures rose 3.1% to $4,241.51 per ounce.
Diplomatic Developments Ease Energy Market Concerns
Reports from Iranian state media indicated that a prospective agreement between Tehran and Washington could include the reopening of the Strait of Hormuz and the removal of U.S. sanctions on Iranian oil exports.
According to Iran’s Mehr news agency, the proposed Memorandum of Understanding would also provide for the release of Iranian assets currently frozen abroad. The report noted that negotiations remain focused on economic and nuclear matters, while discussions surrounding Iran’s missile programme would not form part of the agreement.
The proposal still requires approval from the relevant authorities before any final deal can be completed.
Oil Retreats as Traders Price in Reduced Supply Risks
Crude oil prices fell sharply as markets responded to signs of progress in negotiations.
Brent crude, the international benchmark, declined 4.3% to $86.47 per barrel after slipping below the $90 mark on Thursday.
The move followed comments from U.S. President Donald Trump suggesting that an agreement to end the conflict with Iran, now in its fourth month, could be within reach.
While oil remains considerably higher than levels seen before the outbreak of hostilities, a sustained decline in crude prices could help alleviate fears that rising energy costs will fuel inflation and prompt additional monetary tightening by central banks.
Such an environment is typically less supportive for gold, which does not generate interest income.
Markets Continue to Focus on Federal Reserve Policy
Attention also remains firmly fixed on the Federal Reserve.
The U.S. central bank is widely expected to leave interest rates unchanged at next week’s meeting. However, investors continue to anticipate at least one additional rate increase before the end of the year.
Expectations that policymakers would begin cutting rates during 2026 have largely faded as inflation remains elevated and economic activity continues to show resilience.
Analysts at UBS said: “We are lowering our forecasts to reflect the expected delayed start of Fed rate cuts to 2027 and the resulting reduction in expected ETF gold demand in 2026. The environment for the yellow metal will likely remain challenging in the near term, but we continue to see a constructive outlook over the medium term as Fed rate cuts moderate real rates and the U.S. dollar.”
ECB Rate Increase Adds Another Headwind
The outlook for gold has also been affected by developments in Europe.
Earlier this week, the European Central Bank became the first major central bank to raise interest rates in response to inflationary pressures linked to the conflict in Iran.
Officials stressed the need to contain rising prices, reinforcing expectations that borrowing costs could remain elevated for an extended period.
Softer Dollar Helps Limit Losses
Despite the broader challenges, a weaker U.S. dollar provided some support for gold prices.
A softer dollar generally improves the attractiveness of bullion for international buyers by reducing its cost in other currencies.
Throughout much of the conflict, the dollar has benefited from safe-haven demand and the perception that the U.S. economy, as a major energy exporter, is better positioned than many other countries to withstand prolonged disruptions in energy markets.
Friday’s decline in the currency, however, helped offset some of the pressure on precious metals and contributed to gold’s modest advance.
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