Gold Falls Despite Escalating Middle East Tensions

Gold prices rose slightly on Friday but remain on course for a third consecutive weekly decline. The metal's value has been eroded by higher Treasury yields and stronger rate-hike expectations, which have reduced demand. Spot gold increased 0.4% to about $4,338 an ounce in Asian trading after falling sharply on Thursday.

The 10-year US yield has pushed close to 5%, while markets now see a 70% chance of a September increase in interest rates. This view is supported by the producer-price report released on Thursday, which showed inflation remains too persistent for the Federal Reserve to relax its policy.

Samer Hasn of XS.com notes that gold is being squeezed by higher global bond yields and a Middle East conflict lifting oil prices and inflation expectations. Friday's consumer-price report will be closely watched as it could push Treasury yields and the dollar higher, extending gold's decline.