Gold rises to one-week high, heads for weekly gain on easing oil prices

Gold prices surged to a one-week high on Friday, positioning themselves for their initial weekly increase in four months. This upward trend was driven by a decline in oil prices, which alleviated worries about sustained inflationary pressures. However, the strengthening dollar somewhat restrained the gains. By 11:17 a.m. EDT (1517 GMT), spot gold had climbed 0.3% to $4,352.39 per ounce, following a daily peak near the level seen on September 11.

Throughout the week, gold had risen 0.2%. Conversely, US gold futures slightly declined by 0.2% to $4,390.30. The easing of oil prices has reduced inflationary pressures since oil has been the primary driver of overall inflation. Anticipating a potential US rate hike, investors in precious metals had amassed short positions to capitalize on an anticipated decline in gold. These positions were swiftly liquidated, as per Chris Gaffney, president of world markets at EverBank.

Brent crude oil prices continued their decline for a third consecutive day as concerns over Saudi supply disruptions faded and Middle East conflict escalated. Despite the lower oil prices providing some relief from inflation concerns, the risk of a Middle East supply shock remains a significant issue. The US dollar rose to a seven-week peak, making greenback-priced bullion dearer for holders of other currencies.

The Federal Reserve had increased interest rates by 0.25% to the 3.75%-4% range on Wednesday and hinted at further hikes in the coming months. Traders now estimate a 58% probability of another US rate hike during the central bank's meeting in October, according to the CME FedWatch tool. Although gold is typically regarded as an inflation hedge, heightened interest rates can diminish its appeal by rendering yield-bearing assets more attractive.

Furthermore, the Bank of Japan elevated interest rates to a 31-year high and signaled its intention to continue raising borrowing costs.

Indian gold demand remained muted this week as buyers delayed purchases in anticipation of lower prices, while premiums in China remained steady due to robust investment demand. At present, gold is testing resistance near the $4,400 to $4,440 range, and a breakthrough above this level could pave the way for gold prices to soar higher. Silver rose 1.8% to $66.37, platinum gained 1.7% to $1,798.30, and palladium added 1% to $1,303.46, all metals heading for weekly gains.