Gold Set For Weekly Drop As Oil Price Surge Weighs On Rate-Cut Hopes

Gold prices were on track for a second consecutive weekly drop, despite rising on Friday, as surging energy prices dimmed prospects for near-term U.S. interest rate cuts.

Spot gold was up 0.7% at $5,112.82 per ounce, as of 0411 GMT on Friday. U.S. gold futures for April delivery fell 0.2% to $5,116.30.

The U.S. 10-year Treasury yields eased, increasing the appeal of the non-yielding bullion. However, bullion has lost more than 1% so far this week.

Fears of inflation and questions about the Federal Reserve's ability to cut interest rates if high oil prices persist are somewhat counteracting gold's appeal, said Tim Waterer, KCM Trade chief market analyst. 

“Given the ongoing uncertainty about the duration and scope of the conflict in the Middle East, I expect gold to remain on the radar for investors as a safety play," he said. 

Heightening geopolitical tensions, Iran's Supreme Leader Mojtaba Khamenei said on Thursday that Tehran will keep the strategic Strait of Hormuz closed as leverage against the U.S. and Israel, which has stoked concerns about global energy supply and risk assets.

Oil prices rose above $100 a barrel, as attacks on oil tankers in the Gulf and warnings from Iran shattered prospects of quick de-escalation in the Middle East conflict. As oil prices surged, U.S. President Donald Trump again demanded Fed Chair Jerome Powell cut interest rates.

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Traders, however, expect the Fed to keep rates steady in the current 3.5%-3.75% range at the end of its two-day meeting on March 18, according to CME Group's FedWatch tool. While recent inflation data suggest price growth is under control, the war and the resulting spike in crude prices have yet to filter through the data. Investors are awaiting the release of the delayed January Personal Consumption Expenditures Index, expected on Friday.

Spot silver was up 1% at $84.59 per ounce. Spot platinum gained 1.2% to $2,157.20 and palladium rose 1.1% to $1,636.27.