Gold prices steadied as investors weighed the impact of renewed fighting in the Middle East and the possibility of interest rate hikes to combat inflation.

The precious metal traded near $4,115 an ounce, after ending the previous session a three-day losing streak.

A US official said technical talks between Washington and Tehran are ongoing, despite this week's exchange of airstrikes and the reimposition of US oil sanctions on Iran. The clashes threatened a temporary peace deal signed last month and created uncertainty about the safety of shipments of energy and other goods through the Strait of Hormuz.

For gold traders, the renewed confrontation between the US and Iran increases the likelihood that the Federal Reserve will keep interest rates higher for longer to counter the inflationary impact of rising energy prices.

Rate hike expectations cap gold gains

Minutes of the Fed's June meeting, published this week, showed that some policymakers saw grounds for raising interest rates, though they ultimately kept them unchanged. Tighter monetary policy typically pressures gold, which yields no interest.

Tue, 07 2026

James Steel, chief precious metals analyst at HSBC, said in a note dated July 9 that 'rate hike expectations may be largely priced into markets, but they could limit gold's upside.' He added that dollar strength 'could also be a significant headwind for prices.' The bank cut its average gold price forecast for 2026 to $4,560 an ounce.

Amid speculation about possible Fed changes, new Chairman Kevin Warsh announced on Thursday the formation of five task forces to review the US central bank's approach to several key aspects of monetary policymaking, led by prominent academics, former central bank officials, and corporate executives.

AI demand impacts inflation

In contrast, New York Fed President John Williams said that what he is most focused on among the drivers of US inflation is demand driven by artificial intelligence, suggesting that if this trend continues, it could force the central bank to raise interest rates.

Gold has fallen more than 20% since the outbreak of the Iran war at the end of February, and a profit-taking wave ended a three-year rally, pushing the precious metal briefly below $4,000 recently for the first time since November. However, there is little evidence of investors building large short positions in anticipation of further price declines.

Tue, 07 2026

Central bank purchases remain a key support for the precious metal; the People's Bank of China increased its gold purchases in June, extending its longest buying spree since at least 2015. The latest World Gold Council report showed that the number of central banks expected to increase reserves over the next twelve months is higher than ever.

HSBC's Steel said: 'We expect official sector demand to pick up later in the year based on long-term diversification policies,' adding that lower oil prices have also eased pressure on some central banks to sell gold.

Spot gold fell 0.3% to $4,112.95 an ounce as of 2:40 p.m. Singapore time, down 1.5% for the week, while silver rose 0.2% to $60.06 an ounce. Both platinum and palladium gained, while the Bloomberg Dollar Spot Index, a gauge of the US currency's performance, fell 0.2%.