Gold prices posted modest gains on Friday, although the precious metal remained on course for a weekly loss as investors evaluated the possibility of a peace agreement between the United States and Iran and its potential impact on inflation expectations.
By 05:29 ET (09:29 GMT), spot gold was up 0.2% at $4,220.27 per ounce. Despite the advance, bullion was still set to finish the week more than 2% lower. Gold futures, meanwhile, rose 3.1% to $4,241.51 per ounce.
Proposed Deal Could Ease Energy Market Concerns
Reports from Iranian state media suggested that a potential agreement between Washington and Tehran would include Iran reopening the Strait of Hormuz, while the United States would remove sanctions on Iranian oil exports.
According to Iran’s Mehr news agency, the proposed Memorandum of Understanding would also provide for the release of frozen Iranian assets. The report stated that ongoing negotiations are focused on nuclear and economic matters, while Iran’s missile programme will remain outside the scope of discussions.
The proposal still requires approval from the relevant authorities before it can be finalised.
Falling Oil Prices Reduce Inflation Fears
Oil markets reacted positively to signs of diplomatic progress. Brent crude, the global benchmark, fell 4.3% to $86.47 per barrel after slipping below $90 on Thursday.
The decline followed comments from U.S. President Donald Trump suggesting that an agreement to end the conflict with Iran, now entering its fourth month, could be approaching.
Although crude prices remain significantly above levels seen before the conflict began, lower energy costs could help alleviate concerns that inflation will accelerate further and force central banks to tighten monetary policy.
Higher interest rates generally reduce the appeal of non-yielding assets such as gold.
Federal Reserve Outlook Remains a Key Factor
The Federal Reserve is widely expected to leave interest rates unchanged at next week’s policy meeting. However, financial markets continue to anticipate at least one rate increase before the end of the year.
Expectations that the Fed would begin cutting rates during 2026 have largely disappeared as inflationary pressures and economic resilience have persisted.
Analysts at UBS said: “We are lowering our forecasts to reflect the expected delayed start of Fed rate cuts to 2027 and the resulting reduction in expected ETF gold demand in 2026. The environment for the yellow metal will likely remain challenging in the near term, but we continue to see a constructive outlook over the medium term as Fed rate cuts moderate real rates and the U.S. dollar.”
ECB Tightening Adds to Pressure on Precious Metals
Gold also faced headwinds this week after the European Central Bank became the first major central bank to raise interest rates in response to inflation concerns linked to the conflict in Iran.
Policymakers indicated that controlling price pressures remains a priority, reinforcing expectations that monetary conditions could stay restrictive for longer.
Weaker Dollar Offers Some Support
Despite these challenges, gold found support from a softer U.S. dollar, which can make the metal more attractive to buyers using other currencies.
The dollar has generally benefited throughout the conflict due to safe-haven demand and expectations that the U.S. economy, as a major energy exporter, would be better positioned than many of its global peers to withstand a prolonged energy shock.
However, Friday’s decline in the currency helped offset some of the pressure on bullion, allowing prices to move modestly higher.