Gold prices edged higher in European trading on Friday, extending gains for a second consecutive session, supported by the ongoing weakness in the US dollar as military tensions between the United States and Iran continued to ease.

Despite Friday's advance, the precious metal remains on track for a weekly loss after this week's surge in oil prices reignited inflation concerns and boosted expectations that the Federal Reserve will raise interest rates at least once this year.

The Price

• Gold prices rose 0.3% to $4,134.86 an ounce, from the opening level of $4,123.44, after touching an intraday low of $4,108.81.

• At Thursday's settlement, gold gained 1.15%, posting its first daily advance in four sessions, supported by a weaker US dollar and softer oil prices.

Weekly performance

So far this week, which officially concludes with Friday's settlement, gold prices are down around 1.0%, putting the metal on track for its fifth weekly loss in the past six weeks.

US dollar

The dollar index fell 0.3% on Friday, extending losses for a third consecutive session and reflecting continued weakness in the US currency against a basket of global currencies.

The decline came as safe-haven demand for the dollar eased following successful diplomatic efforts to contain the military escalation between the United States and Iran, with both sides continuing to observe the ceasefire agreement.

Latest developments in the Iran conflict

• Military strikes between the United States and Iran have paused to allow regional mediation efforts to continue.

• US President Donald Trump warned that any further attacks on commercial vessels in the Strait of Hormuz would trigger "much stronger" military strikes.

• A US official revealed that "technical back-channel talks" between Washington and Tehran over the nuclear issue are still ongoing.

• Traffic through the Strait of Hormuz slowed sharply, with only 13 oil tankers and commercial vessels transiting the waterway over the past 24 hours.

US interest rates

• According to CME Group's FedWatch tool, markets are currently pricing a 78% probability that the Federal Reserve will leave interest rates unchanged at its July meeting, with a 22% probability of a 25-basis-point rate hike.

• Markets are also pricing a 19% probability that the Fed will keep rates unchanged at its December meeting, while the probability of a 25-basis-point hike stands at 81%.

• Investors continue to monitor incoming US economic data and comments from Federal Reserve officials for fresh clues that could reshape those expectations.

Gold outlook

Tim Waterer, Chief Market Analyst at KCM Trade, said gold is currently trading in a consolidation range following Thursday's gains, as traders remain hesitant to bet on further upside amid lingering uncertainty over US-Iran relations.

Waterer added that he expects gold to continue attracting buyers on price dips as long as oil prices remain near current levels. However, any sharp rally in crude could reignite concerns over inflation and interest rates, creating headwinds for the precious metal.

SPDR fund

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased by 3.14 metric tons on Thursday, bringing total holdings to 1,005.65 metric tons, the highest level since June 25.

The euro rose against a basket of major currencies in European trading on Friday, extending its gains for a third consecutive session against the US dollar and heading for a second straight weekly advance, supported by easing military tensions between the United States and Iran in the Strait of Hormuz.

Following this week's surge in global oil prices, expectations have increased that the European Central Bank could deliver one additional 25-basis-point interest rate hike before the end of the year.

The Price

• The euro rose around 0.3% against the US dollar to $1.1461, from Friday's opening level of $1.1430, after touching an intraday low of $1.1428.

• The euro closed Thursday's session up more than 0.1% against the dollar, marking its second consecutive daily gain after the exchange of military strikes between the United States and Iran came to a halt.

Weekly performance

So far this week, which officially concludes with Friday's settlement, the single European currency has gained more than 0.25% against the US dollar and is on track to post its second consecutive weekly advance.

US dollar

The dollar index fell 0.3% on Friday, extending losses for a third straight session and reflecting continued weakness in the US currency against a basket of major and minor currencies.

The decline came as demand for the dollar as a safe-haven asset continued to ease after diplomatic efforts successfully contained the military escalation between the United States and Iran, with both sides adhering to the ceasefire agreement.

Latest developments in the Iran conflict

Military strikes between the United States and Iran have paused to allow regional mediation efforts to continue.

• US President Donald Trump warned that any further attacks on commercial vessels in the Strait of Hormuz would trigger "much stronger" military strikes.

• A US official revealed that "technical back-channel talks" between Washington and Tehran over the nuclear issue are still ongoing.

• Traffic through the Strait of Hormuz slowed sharply, with only 13 oil tankers and commercial vessels transiting the waterway over the past 24 hours.

European interest rates

• Money markets continue to price around a 10% probability of a 25-basis-point European Central Bank rate hike at the July meeting.

• This week, the probability of a 25-basis-point ECB rate hike in December has climbed to above 90%.

• Investors are awaiting additional eurozone data on inflation, unemployment, and wage growth to reassess those expectations.

The Japanese yen strengthened broadly in Asian trading on Friday against a basket of major and minor currencies, extending gains for a second consecutive session against the US dollar after the Japanese government signaled plans to encourage pension funds to increase their holdings of domestic financial assets.

Government data released in Tokyo also showed producer prices rose to their highest level in three years in June, the latest sign of renewed inflationary pressures facing Bank of Japan policymakers, reinforcing expectations of another interest rate hike in October.

The Price

• The US dollar fell 0.65% against the yen to 161.29, from Friday's opening level of 162.35, after reaching an intraday high of 162.42.

• The yen ended Thursday's session up 0.15% against the dollar, marking its first daily gain in five sessions as it continued to recover from its weakest levels in 40 years.

• In addition to bargain buying, the yen also benefited from easing military tensions between the United States and Iran.

Japanese government and pension funds

Japanese Finance Minister Satsuki Katayama said on Friday that the government will explore ways to encourage pension funds, including the Government Pension Investment Fund (GPIF), to increase their investments in domestic financial assets.

Market views and analysis

• Fabian Yeap, market analyst at IG, said: "Pension funds are enormous in size, so you can imagine the impact if there is a structural shift in how they allocate their assets."

• Yeap added: "At the moment, around 50% of their portfolios are allocated to foreign assets. Any change in that allocation would certainly generate larger flows into domestic assets. That would support the yen while also benefiting Japanese equities and bonds."

• He also noted: "With the yen trading near its weakest levels in almost 40 years against the dollar and policymakers having limited options to support the currency, addressing the issue structurally by encouraging greater investment in yen-denominated assets would provide stronger and more sustainable long-term support for the currency."

Japanese government and central bank

Economy Minister Minoru Kiuchi said on Friday that the government will not interfere with the Bank of Japan's decisions on interest rates, emphasizing that monetary policy remains solely the responsibility of the central bank.

Kiuchi added that the government is revising the wording of the monetary policy section in its annual economic plan to avoid any interpretation that it is exerting political pressure on the central bank. The revised plan is expected to receive formal government approval next week.

Japan producer prices

Data released in Tokyo showed that Japan's producer price index rose 7.1% year on year in June, the fastest increase since March 2023, exceeding market expectations of a 6.8% rise and accelerating from a 6.6% increase in May.

Japanese companies have increasingly passed on the higher costs resulting from the conflict in the Middle East to consumers, strengthening expectations that the Bank of Japan could raise interest rates once more before the end of the year.

The data followed a Bank of Japan report released on Thursday warning that the pass-through of higher input costs is accelerating and could push consumer inflation higher later this year.

Japanese interest rates

• Markets continue to price the probability of a 25-basis-point Bank of Japan rate hike at the July meeting at below 25%.

• The probability of a 25-basis-point rate hike at the October meeting has climbed to above 75%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess those expectations.

The Nasdaq Composite posted strong gains on Thursday as semiconductor stocks led a rally in US equities, outweighing concerns over renewed exchanges of attacks between the United States and Iran and the inflationary risks stemming from the conflict.

Tehran said it had targeted US military sites in Kuwait, Qatar, and Bahrain in retaliation for US strikes against Iran carried out on Wednesday.

Semiconductor stocks overshadow geopolitical concerns and lift Wall Street

The Philadelphia Semiconductor Index (SOX) gained 3.06%, extending its advance for a second consecutive session, while both the Dow Jones Industrial Average and the S&P 500 also closed higher.

Micron Technology rose 4.5% after announcing plans to invest more than $250 billion in the United States through 2035 to meet growing demand for memory chips used in artificial intelligence applications.

Applied Materials gained 3.2%, while Sandisk surged 7.6%.

Artificial intelligence-related stocks have experienced increased volatility in recent weeks as investors question whether the rally that has driven Wall Street to record highs in 2026 can be sustained.

"This remains an AI-driven bull market," said Ross Mayfield, Investment Strategy Analyst at Baird in Louisville, Kentucky. "The rally had begun broadening into other sectors, but that depends on oil prices and interest rates remaining stable. With the latest escalation in the Middle East, that assumption is now being tested."

Meta Platforms also advanced after Reuters reported that the company plans to begin manufacturing its own artificial intelligence chips starting in September.

The S&P 500 closed up 0.81% at 7,543.66, while the Nasdaq Composite gained 1.30% to 26,206.89. The Dow Jones Industrial Average rose 0.27% to 52,487.41.

Seven of the 11 major S&P 500 sectors finished higher, led by information technology, which gained 1.65%, followed by consumer discretionary, up 1.46%.

Following Thursday's gains, the S&P 500 is now up about 10% since the start of 2026 and stands less than 1% below its record closing high reached on June 2.

Investors remain cautious ahead of earnings season and Fed meetings

With the second-quarter earnings season approaching, analysts surveyed by LSEG I/B/E/S expect S&P 500 companies to report annual earnings growth of 24%, with technology companies accounting for the largest share of that increase.

The index is currently trading at a forward price-to-earnings ratio of around 20, compared with roughly 21 a month ago.

On the economic front, the number of Americans filing new unemployment claims declined last week, pointing to continued resilience in the labor market despite slower job growth in June.

The Federal Reserve kept interest rates unchanged at its June meeting under Chair Kevin Warsh. However, minutes released on Wednesday showed that a small number of policymakers saw a case for raising borrowing costs before the committee ultimately agreed to leave rates unchanged.

According to CME Group's FedWatch tool, markets are currently pricing in a 25-basis-point interest rate hike by the December meeting.

Among individual stocks, PepsiCo fell 3.3% despite reporting quarterly revenue that exceeded analysts' expectations.

Costco Wholesale dropped 4.2% to its lowest level in six months after reporting slower growth in comparable sales during June.

Advancing stocks outnumbered decliners within the S&P 500 by a ratio of 1.5-to-1. Total trading volume on US exchanges reached approximately 14.7 billion shares, compared with the 20-session average of 22.9 billion.