Gold Holds Steady Amid Middle East Tensions Ahead of Fed Rate Decision

Gold prices held steady on Friday as investors assessed developments in the Middle East conflict and its implications for inflation ahead of the US interest rate decision next week.

Brent crude oil prices fell over 3% after rising above $100 a barrel, which stoked inflation concerns and strengthened the case for higher interest rates. This has put downward pressure on gold, which typically acts as a hedge against inflation but is negatively affected by higher interest rates.

The US Federal Reserve's policy meeting next week is expected to keep interest rates unchanged, with an 80% chance of a rate hike in September according to the CME FedWatch Tool. Analysts at ING noted that recent strength in bullion appears driven largely by dip-buying and short covering.

Tai Wong, an independent metals trader, believes gold feels ready to move back higher if the Federal Reserve is clearly on hold next week. However, analysts at ING warned that elevated oil prices and rising yields are likely to cap any recovery, leaving $4,000 as the key near-term level to watch.