HG MARKETS:

Gold prices inched higher on Friday, but the yellow metal remained on course for a weekly decline as investor optimism over a substantial interest rate cut by the Federal Reserve next month continued to fade.Spot gold rose 0.2% to $3,341.70 per ounce, gold futures for December delivery gained 0.1% to $3,387.80 per ounce.Despite modest gains, gold was set to post a weekly loss of approximately 1.5%, primarily due to a sharp sell-off earlier in the week.

Sentiment was dented after President Donald Trump announced that gold bars would be exempt from tariffs, a move that removed a potential price support for the metal.Further downward pressure emerged following the release of U.S. Producer Price Index (PPI) data for July, which came in hotter than expected. The stronger-than-anticipated inflation reading weakened the case for a large interest rate cut at the Federal Reserve’s September meeting, dampening demand for non-yielding assets like gold.

Earlier in the week, softer Consumer Price Index (CPI) data had fueled speculation that the Fed might adopt a more aggressive stance and potentially deliver a 50 basis-point rate cut. However, Thursday’s robust PPI data suggested inflation remains sticky, possibly exacerbated by the ongoing impact of tariffs introduced under the Trump administration. While markets still widely expect a rate cut in September, the probability of a half-point reduction has declined notably. The odds of even a 25 basis-point cut have slightly decreased, as traders reassess the likelihood of the Fed maintaining higher interest rates for longer. This prospect typically weighs on gold, since higher rates increase the appeal of interest-bearing assets relative to bullion.

In addition to monetary policy, investor attention on Friday also turned to the much-anticipated summit between U.S. President Donald Trump and Russian President Vladimir Putin, taking place in Anchorage, Alaska. The meeting comes amid rising geopolitical tension over the ongoing conflict in Ukraine. President Trump has issued a stark warning to Moscow, promising “severe consequences” should President Putin obstruct progress toward a peaceful resolution.

A constructive outcome from the talks could ease geopolitical tensions and potentially dampen demand for gold as a traditional safe-haven asset. Conversely, any signs of diplomatic failure or escalation could reignite risk-off sentiment and bolster gold prices in the near term.