Gold prices rose slightly on Friday, keeping the yellow metal on track for weekly gains, recovering its previous losses, amid a decline in oil prices below $100 a barrel,

despite ongoing hostilities in the Middle East. Meanwhile, investors await developments in tensions for new clues about inflation risks from rising energy prices and U.S. interest rate expectations.

Spot gold rose 0.2% to $4,055.38 per ounce by 09:25 GMT, after falling 2% on Thursday to $4,047.26, while U.S. gold futures for August delivery rose 0.2% to $4,058.10.

The precious metal is now heading for a weekly gain of more than 1%. Giovanni Staunovo, an analyst at UBS, said: 'Gold rebounded from negative territory to slightly positive territory, driven by lower oil prices, which eased pressure on the Federal Reserve to adjust interest rates.' He added: 'We still believe the Federal Reserve will keep interest rates steady next week, and this should support gold prices in the coming months.'

Brent crude rose more than 7% on Thursday, breaking above $100 a barrel for the first time since May, after U.S. President Donald Trump promised 'major military punishment' against Iran and its Houthi allies, following an attack by Yemeni fighters on two Saudi oil tankers in the Red Sea. However, prices fell back below that level on Friday.

The rise in oil prices due to supply disruptions in the Gulf has negatively affected gold prices, as it increases expectations of interest rates staying higher for longer, reducing the appeal of non-yielding gold.

However, prices fell below that level on Friday. Investors are awaiting the U.S. Federal Reserve's monetary policy meeting next week, where it is widely expected to keep interest rates unchanged. Traders see a 78% probability of a rate hike in September. The European Central Bank kept interest rates unchanged as expected on Thursday, but left the door open for a further hike in September.

In related news, gold discounts in India widened to their highest in seven weeks, as demand remained weak after a price rally earlier in the week that deterred buyers, while China, the top gold consumer, saw improved buying interest.

In other precious metals markets, spot silver rose 1.2% to $58.36 per ounce, platinum gained 0.2% to $1,603.49, while palladium fell 0.4% to $1,251.65.

Precious metals analysts at Investing.com said gold is on track for weekly gains amid Middle East tensions and interest rate expectations from the Federal Reserve. The U.S. military announced it had completed the 13th consecutive wave of strikes on Iranian targets early Friday morning, as hostilities between Washington and Tehran continue.

U.S. forces targeted Iranian military sites, including drone storage facilities and coastal surveillance posts, aimed at undermining Tehran's ability to launch attacks on commercial vessels in the Strait of Hormuz, one of the world's most vital oil transit chokepoints.

Meanwhile, Iran rejected a U.S.-backed ceasefire proposal presented by Iraqi Prime Minister Ali al-Zaidi, according to The New York Times on Thursday, citing Iranian and Iraqi officials. The report said Tehran expressed its refusal to accept a temporary agreement that leaves the issue of control over the Strait of Hormuz unresolved. It noted that this proposal is the only ceasefire offer currently under consideration.

U.S. President Donald Trump had warned this week of 'major military punishment' against Iran and the Houthis, after the Yemeni group claimed responsibility for attacking two Saudi oil tankers in the Red Sea, which could open a new front in the fighting. With the potential disruption of crude oil supplies in the Strait of Hormuz and the Bab el-Mandeb strait, another major waterway near Yemen, oil prices rose, with Brent crude briefly reaching $100 a barrel for the first time since May.

Concerns are growing that rising oil prices could lead to an inflation wave, prompting central banks to raise interest rates. This trend could signal a sharp decline in the value of gold, a non-yielding asset that tends to underperform in high borrowing cost environments.

At the same time, the U.S. dollar has risen compared to pre-conflict levels, as investors view the dollar as a relatively safe haven. A stronger dollar could reduce gold's appeal by making it more expensive for foreign buyers.