Gold prices edged lower on Friday, slipping 0.2% to $4,685.23 an ounce, as the metal headed for its first weekly decline in five weeks. The decline came amid a surge in oil prices and a strengthening dollar, which together dampened bullion's appeal as a safe-haven asset.
Brent crude futures climbed above $106 a barrel earlier in the session, adding more than 17% for the week. The sharp rise followed Iran's release of video footage showing commandos boarding a cargo ship in the Strait of Hormuz, a critical chokepoint for global oil shipments. According to Reuters, roughly a fifth of the world's oil and gas typically transits through the strait.
The oil price spike stoked inflation fears, pushing the dollar higher and driving bond yields up. The dollar index was on track for its first weekly advance in three weeks, as ongoing U.S.-Iran negotiations stalled, prompting investors to favor dollar holdings. Sho Suzuki, market analyst at Matsui Securities, noted that oil and the dollar were moving closely together.
The rising yields and stronger dollar have taken some shine off gold's safe-haven status. Unlike bonds or cash, gold does not generate interest, making it less attractive when yields rise. Kelvin Wong, senior market analyst at OANDA, said gold is stuck in a range between roughly $4,645 and $4,900. He added that any extended shutdown risk in the Strait of Hormuz would likely keep oil elevated and gold under pressure.
U.S. June gold futures dropped 0.5% to $4,700.50. On Kitco's live feed, spot gold hovered near $4,686, trading within a band of $4,657.70 to $4,712.00 for the session. The metal remained pinned near the $4,700 level that traders have been watching all week, lacking sufficient momentum to break out convincingly.
Pressure extended across the precious metals complex. Silver fell 1% to $74.64 an ounce, while platinum lost 1.4% to $1,977.47. Palladium held steady at $1,468.18.
Physical demand sent mixed signals into the market. In India, gold premiums hit a 10-week high as supplies tightened. In China, premiums rose to $9-$12 an ounce above the global benchmark. Peter Fung, head of dealing at Wing Fung Precious Metals, noted renewed physical demand and fresh buying interest as prices hovered near $4,700.
Domestic gold in India was quoted around 151,200 rupees per 10 grams on Friday, according to Reuters. Retail interest faded after the Akshaya Tritiya festival, though some traders suggested demand could pick up again if prices slip under 150,000 rupees.
The outlook remains uncertain. If the Strait of Hormuz reopens safely, oil prices could retreat, potentially allowing gold to recover some losses as long as inflation worries ease. However, a prolonged closure would likely keep yields and the dollar elevated, leaving bullion vulnerable to further declines. Goldman Sachs estimates that Gulf oil supply would mostly rebound within months after a full reopening, though tanker bottlenecks and spotty well performance could slow the pace.
At this point, gold's narrative is less about a flight to safety and more about the drag from holding a non-yielding asset. Unless oil, the dollar, or yields shift out of their current ranges, investors stepping in around $4,700 may be signing up for more volatility.
