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Gold prices drop the most in six weeks as inflation fears are fueled by Middle East conflict

The price of gold was set to?fall? by its biggest weekly loss since 2006 on Friday as the escalating U.S. Iran conflict pushed up oil prices. This increased inflationary pressures, and strengthened the case for higher U.S. rates.

Spot gold rose 0.8% to $4,002.39 an ounce at 0624 GMT. It had fallen as low as it has been since July 1. U.S. Gold Futures for August Delivery gained 0.4% to $4.006.10.

Metal has fallen 3% this week, the most since June 1. The Middle East conflict is outweighing the support of softer June U.S. This week, the latest inflation figures were released.

Tim Waterer is the chief analyst at KCM Trade. He said that gold was making small steps up today, after seeing the metal slip below $4,000 sparked some bargain-hunting.

Waterer stated that "the Middle East is still a geopolitical risk, and inflation and yield are the main factors holding back gold."

The oil price has risen by about 12% in the past week due to supply concerns raised by the escalated conflict between Iran and the United States.

Oil prices are on the rise, which could increase inflation fears and interest rate increases. In a high interest rate environment, non-yielding assets like gold tend to struggle as investors look for higher return assets.

Lorie Logan, the Dallas Federal Reserve president, became the first member of Fed Chairman Kevin Warsh’s new colleagues to publicly call for a rate increase.

Fed Vice Chair Philip Jefferson also suggested that he would be willing to raise rates if inflation did not improve in the near future.

According to the CME FedWatch Tool, traders are pricing in 73% of a rate increase in December.

This week, gold?discounts widened in India to a month-high as buyers remained 'on the sidelines' in anticipation of lower prices. Premiums in China remained largely unchanged.

Silver spot rose 0.6% to $55.83 an ounce. Platinum fell 1% to 1,602.02 while palladium slipped 0.4% to 1 244.84. All three metals are headed for a loss this week. (Reporting from Pablo Sinha in Bengaluru and Swati verma; Editing by Subhranshu Sahu and Sherry Jacob Phillips)

(source: Reuters)