Gold prices in Dubai declined on Friday, retracing a portion of this week’s gains as heightened US Treasury yields and renewed tensions in the Strait of Hormuz prompted a cautious stance among investors. The 24-karat variety was priced at Dh495.75 per gram at 12.47 pm, a decrease from Dh497.25 on Thursday. The 22-karat rate decreased to Dh459 from Dh460.50. Friday’s decline positions prices beneath the month’s apex, yet they remain elevated relative to the nadir observed at the onset of July. The 24-karat rate commenced the month at Dh489.75 on July 1, subsequently rising to Dh503 on July 4 and July 5, marking its peak for the month to date. Prices subsequently declined to Dh490 on July 8, rebounded to Dh497.25 on Thursday, and then softened once more on Friday. The 22-karat variety exhibited a comparable trajectory, ascending from Dh453.50 on July 1 to reach a monthly peak of Dh466 on July 4 and July 5. It declined to Dh453.75 on July 8 before rebounding to Dh460.50 on Thursday.

“Gold’s recovery has lost steam after a brief rally with the market shifting back into a more cautious tone. The renewed escalation in geopolitical tensions surrounding the Strait of Hormuz has weighed on broader market confidence, and gold retreated back towards the 4,100 level,” said Ahmad Assiri. “At the same time, crude oil has moved higher as markets price a greater probability of supply disruptions and hence feeding into greater inventories shortage.” International gold traded near $4,115 an ounce following the conclusion of a three-day losing streak in the prior session. Renewed fighting in the Middle East has heightened concerns regarding the transit of energy and other commodities via the Strait of Hormuz, while elevated oil prices have exacerbated inflationary pressures.

Assiri noted that investors continued to exhibit caution in establishing substantial positions as US Treasury yields remained high and uncertainty persisted regarding the Federal Reserve’s forthcoming actions. “Precious metal investors remain reluctant to build strong long positions as US Treasury yields stay elevated and uncertainty over the Federal Reserve’s policy path persists. Adding to the pressure, higher energy prices resulting from the renewed tensions could delay the global disinflation process, and in turn, keeping yields elevated.” Minutes from the Federal Reserve’s June meeting indicated that certain policymakers saw merit in raising interest rates, although borrowing costs remained unchanged in the end. Elevated interest rates typically diminish the attractiveness of gold, as the asset does not yield interest payments.

Gold has declined by over 20% since the onset of the Iran conflict in late February, with significant profit-taking momentarily driving prices beneath $4,000 an ounce for the first time since November. Assiri stated that the medium-term outlook continued to be positive, although the market did not present a definitive catalyst for a prolonged recovery beyond $4,200. “In my view, gold medium term outlook remains constructive relative to the significant selling pressure seen in recent weeks, but the near-term bias is still cautious. The market appears to have moved away from expectations of a decline towards the 3,900 region, yet it also lacks a convincing catalyst for a sustained move back above 4,200.” Central bank purchases persist in offering support, as evidenced by China’s addition to its gold reserves in June, marking the continuation of its longest buying streak since at least 2015. “Until the market gains greater confidence on the direction of US interest rates, gold is likely to remain caught between geopolitical and the headwind of elevated rates,” Assiri said.