Gold prices fell on Friday, setting the stage for a weekly loss, as rising tensions in the Middle East dampened hopes for a U.S.-Iran peace deal, alongside growing inflation and worries about possible interest rate increases. Spot gold fell by 0.3%, trading at $4,462.22 per ounce, as of 0049. It has decreased by about 1.6% for the week so far. U.S. gold futures for August delivery decreased by 0.4%, settling at $4,489. The Hezbollah militia, supported by Iran, has rejected a suggested ceasefire in Lebanon, while Israel has signalled its intention to keep its troops stationed in the area. This development presents a significant obstacle to U.S. President Donald Trump’s efforts to reduce tensions and create a route toward peace with Tehran.

Kansas City Federal Reserve President Jeffrey Schmid remarked on Thursday that the U.S. central bank is at a crossroads, weighing the option of adopting a patient approach by holding interest rates steady against the possibility of raising rates to tackle inflation that has surpassed target levels for several years. Meanwhile, San Francisco Fed President Mary Daly indicated that the path of U.S. interest rates will depend on the economy’s development, mentioning that monetary policy is “in a good place” and the Fed is prepared to react “either way.” Gold is often viewed as a protection against inflation; however, high interest rates typically apply downward pressure on the metal that does not yield returns.

Investors are eagerly awaiting the release of the May U.S. nonfarm payrolls data, expected later today, to evaluate the direction of the Federal Reserve’s monetary policy. India’s physically backed gold exchange-traded funds saw their first net monthly outflow in May, indicating a notable change after a year of consistent inflows. This trend appeared as investors chose to take profits following a significant rise in prices, which was affected by high import duties, based on data published on Thursday.

Physical investment is set to overtake jewellery as the main driver of gold demand for the first time this year, due to notable decreases in jewellery consumption amid high prices, as reported by consultancy Metals Focus in its annual report. Spot silver decreased by 0.6% to $73.45 per ounce, platinum declined by 1.3% to $1,876.58, and palladium fell by 1.5% to $1,301.25. All metals were heading towards a weekly drop.