July 17 (Reuters) – Gold rose on Friday but was on track for its biggest weekly loss in six as escalating U.S.-Iran tensions drove energy prices higher, fuelling inflation fears and reinforcing expectations of U.S. interest rate hikes.<\/p>\n
\n Spot gold was up 1.2% at $4,017.09 per ounce by 11:50 a.m. EDT (1550 GMT). Prices touched their lowest level since July 1 earlier in the session and were down around 2.5% so far for the week. U.S. gold futures for August delivery fell 0.5% to $3,973.10.<\/p>\n
\n The U.S. dollar rose for a second straight session, making bullion more expensive for overseas buyers. [USD\/]<\/p>\n
\n “The main drivers of the selloff in gold have been a stronger U.S. dollar and higher global inflation fears, which have sent global interest rates higher,” said Chris Gaffney, president of world markets at EverBank. [US\/] <\/p>\n
\n The U.S. escalated its renewed bombing campaign on Iran, hitting bridges and an airport. Tehran responded with strikes on U.S. bases across the Middle East.<\/p>\n
\n Brent crude oil prices were up more than 14% for the week following the attacks. [O\/R] <\/p>\n
\n Bullion has fallen about 25% since the U.S.-backed war with Iran began in late February, pressured by expectations that war-driven inflation could keep interest rates higher for longer.<\/p>\n
\n While gold is seen as a hedge against inflation, higher rates typically weigh on the non-yielding metal.<\/p>\n
\n “Recent data have decreased the probability of a rate hike at the next FOMC meeting, but global interest rates continue to climb and the recent increase in oil prices could drive the Federal Reserve to take a more hawkish stance on U.S. interest rate policy,” Gaffney said.<\/p>\n
\n Traders see about a 53.3% chance of a U.S. interest rate hike in September, according to the CME FedWatch Tool.<\/p>\n
\n On Thursday, Fed Vice Chair Philip Jefferson suggested he would be open to raising rates if there was no near-term improvement in inflation.<\/p>\n
\n However, “gold’s share in private portfolios remains low, and recent geopolitical developments, including Iran and broader tensions, may accelerate diversification beyond central banks to private investors,” Goldman Sachs said in a note. <\/p>\n
\n Spot silver rose 1.1% to $56.09, platinum dropped 1.3% to $1,597.13, and palladium was steady at $1,249.81. All three metals were headed for weekly losses.<\/p>\n
\n (Reporting by Noel John in Bengaluru; Editing by Jan Harvey)<\/p>\n
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