Gold Prices Rise as Dollar Weakens, Treasury Yields Fall

Gold prices climbed during Asian trading on Friday, supported by a weaker U.S. dollar and falling Treasury yields, as investors assessed inflation concerns driven by rising oil prices and expectations of further Federal Reserve interest rate hikes.

Spot gold increased 1.1% to $4,177.83 per ounce by 22:40 ET (02:40 GMT), while U.S. gold futures advanced 1.1% to $4,203.40 per ounce.

The precious metal benefited from a pause in the dollar's recent rally, making gold more affordable for buyers using other currencies. Meanwhile, the benchmark 10-year U.S. Treasury yield declined for a second consecutive session, improving the appeal of non-yielding assets such as bullion.

However, uncertainty surrounding U.S. monetary policy and persistent inflation risks continued to influence the gold market outlook.

St. Louis Federal Reserve President Alberto Musalem warned Thursday that additional monetary tightening may be necessary to return inflation to the central bank's 2% target within a reasonable period.

Musalem suggested interest rates could rise further over the next six to nine months but did not specify whether he would support a rate increase at the Fed's October 27-28 policy meeting.

According to the CME FedWatch tool, traders assigned an 18% probability to an October rate hike and an 82% likelihood of an increase in December.

Higher interest rates generally pressure gold prices because they increase the attractiveness of interest-bearing investments compared with bullion, which generates no income.

Meanwhile, escalating tensions in the Middle East continued to raise concerns about global energy supplies. Brent crude oil climbed above $104 per barrel, fueling fears that sustained energy costs could keep inflation elevated and encourage central banks to maintain restrictive monetary policies.

Although gold traditionally serves as a hedge against inflation, prolonged interest rate increases could limit further gains.

Nevertheless, continued gold purchases by central banks and concerns about rising government debt could provide underlying support for precious metal prices.

Market analysts also expect China's central bank to continue expanding its gold reserves, potentially strengthening demand and supporting bullion over the longer term.

Other precious metals recorded gains during Friday's session. Silver prices rose 1.7% to $60.19 per ounce, while platinum advanced 2.1% to $1,678.15 per ounce.

Investors will continue monitoring U.S. inflation indicators, Treasury yields, Federal Reserve policy signals, and Middle East developments for clues about gold's next direction.