Gold heads for weekly loss as Middle East tensions, Fed hike fears cap recovery

LONDON (July 10) Gold (XAU/USD) trades on the back foot on Friday, struggling to build on the previous day's gains and heading for a weekly loss as renewed hostilities in the Middle East have revived fears of energy-driven inflation and Federal Reserve (Fed) interest rate hikes.

At the time of writing, XAU/USD is trading around $4,098, down 0.60% on the day.

The metal, however, lacks follow-through selling as traders reassess US-Iran tensions following reports that technical talks are continuing despite the military clashes, prompting a pullback in crude Oil prices.

Can Gold stage a sustained recovery?

While Gold has staged a modest rebound from $3,941, its lowest level since November 2025, the metal is struggling to attract meaningful buying interest.

Since the US-Iran war broke out in February, Gold has behaved less like a traditional safe-haven asset and more like a rate-sensitive instrument, with price action largely driven by the hawkish repricing of Fed interest rates.

As a result, Gold posted its worst quarterly performance in thirteen years, while traders also booked profits following an exceptional two-year rally that pushed prices to a record high near $5,600 in January.

The near-term outlook is still tilted to the downside. The situation in the Middle East remains fragile, keeping the risk of energy-driven inflation at the forefront.

Even if geopolitical tensions ease and lower crude Oil prices help reduce inflation concerns, the Fed is expected to maintain a restrictive monetary policy stance as policymakers continue to signal the central bank's commitment to returning inflation to its 2% target.

Gold is therefore unlikely to stage a sustained recovery as expectations for a Fed interest rate hike later this year continue to support the US Dollar (USD) and US Treasury yields.

According to the CME FedWatch Tool, markets are pricing in a 58% chance of a rate increase at the September meeting. Attention now turns to next week's US Consumer Price Index (CPI) data, due on Tuesday, which could shape expectations for the Fed's interest rate path in the coming months.

FXStreet