Gold Falls Despite Escalating Middle East Tensions

Gold prices are struggling to hold their ground despite escalating Middle East tensions and rising oil prices. On Friday, spot gold rose 0.4% to about $4,338 an ounce in Asian trading, but this was not enough to prevent a third consecutive weekly decline.

The 10-year US Treasury yield has pushed close to 5%, while markets now see roughly a 70% chance of a September rate hike by the Federal Reserve. This has eroded demand for gold, which does not generate yields like other assets.

The producer price index (PPI) report released on Thursday further hardened the view that inflation remains too persistent for the Fed to relax. The PPI rose 0.4% in August and 5.4% from a year earlier, with goods prices climbing 1.1%, led by energy.

Analysts noted that gold and silver have so far held the lower end of their recent ranges despite the jump in yields. However, stronger data and a hawkish Fed could trigger further near-term selling, according to TD Securities analysts Ryan McKay and Bart Melek.