Gold prices edged lower on Friday, pressured by a stronger US dollar and uncertainty surrounding a US-Iran ceasefire, yet remained on track for a third straight weekly advance. Support for the non-yielding metal has been underpinned by investors pricing in expectations of earlier and deeper interest rate cuts by the US Federal Reserve.
A firmer US dollar index made gold, priced in the currency, more expensive for holders of other currencies.
Kyle Rodda, Senior Financial Markets Analyst at Capital.com, noted, "The trajectory of the Middle East ceasefire and its implications for energy markets remain unclear... Consequently, gold is largely in a holding pattern on the final trading day of the week."
Since the outbreak of conflict involving Iran on February 28, spot gold has declined approximately 10%, driven by inflation concerns stemming from high energy prices and market bets on potentially higher US interest rates.
A fragile two-week ceasefire between the US and Iran faced increased pressure on Friday, with Washington accusing Tehran of reneging on commitments related to the Strait of Hormuz.
However, buoyed by optimism that a ceasefire could lead to the reopening of the Strait of Hormuz, through which about 20% of the world's oil and liquefied natural gas passes, Brent crude oil registered a weekly loss exceeding 11%.
Rodda added, "If the situation spirals out of control, gold could swiftly retreat to the mid-$4,000 level. But if the ceasefire holds and the likelihood of a peace agreement increases, prices could break above $5,000."
On the data front, the US Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred inflation gauge, rose 2.8% in the 12 months to February, matching market forecasts, with a potential for a larger increase in March.
Investors are awaiting the release of US Consumer Price Index (CPI) data for March later in the day for further clues on the direction of Fed monetary policy.
According to the CME FedWatch Tool, markets now price a 31% probability of the Fed cutting interest rates by at least 25 basis points by December, up from 20% the previous trading day.