Gold set for steepest weekly drop in over four months as prices fall below $4,000

Gold prices were poised for their largest weekly drop in over four months in late May, sinking below the $4,000 threshold, according to market data. The decline was attributed largely to mounting concerns about inflation, which were exacerbated by a recent surge in oil prices. By 17:05 ET on Friday, spot gold had fallen by 0.7% to $3,995.63 per ounce, marking a weekly decrease of more than 3.7%.

Futures contracts showed a more modest decline, with gold futures edging up by 0.2% to $4,002.10 per ounce and anticipating a weekly drop of 3.8%.

In contrast, Brent crude futures, the primary oil benchmark, rallied once again, reaching $116 per barrel for the first time since May. This upward movement was driven by speculation of potential tensions escalating in the Middle East, with rumors suggesting the U.S. and Israel might launch a new attack on Iran following the American midterm elections in November.

Iran has vowed retaliation, possibly through targeting economic and civilian infrastructure in the Persian Gulf. Meanwhile, Yemen-based Houthi rebels have continued targeting sites in Saudi Arabia.

The combination of higher oil prices and inflationary pressures has the potential to heighten inflation ahead of the Federal Reserve's upcoming policy meeting. While the Fed is expected to refrain from raising rates at their October 27-28 gathering, an increase at their December meeting is anticipated. Several Fed members have downplayed the urgency of an imminent rate hike, but policymakers have acknowledged the need to bring inflation down to their 2% target.

Despite the recent selloff in tech stocks and a flight to the relative safety of U.S. Treasury yields, the gold market has been more focused on higher oil prices and their impact on inflation, ultimately influencing central bank policy decisions.