Gold prices (XAU/USD) rebounded slightly on Friday, recovering from recent losses as geopolitical tensions in the Middle East surged. However, the yellow metal remains on course for its first weekly decline in five weeks, driven by rising oil prices and inflation concerns amid escalating hostilities between Iran and Israel.

Escalating Regional Conflict Drives Market Volatility

The seventh day of the Iran-Israel conflict saw Tehran launching missiles and drones across the Gulf on Thursday, striking an oil refinery in Bahrain. In response, Israel continued its airstrikes on Tehran, and the United States suspended operations at its embassy in Kuwait. The conflict has raised fears of a broader regional war, with oil prices rising sharply and inflationary pressures mounting.

US President Donald Trump claimed that Iranian officials had reached out to him in an effort to end the conflict, but he dismissed the overtures as too late, stating the US is committed to dismantling Iran’s capabilities. In contrast, Iranian Foreign Minister Abbas Araghchi denied any intention to negotiate, saying Tehran has no interest in a ceasefire. The Islamic Major Guard Corps warned that retaliatory strikes would intensify in the coming days.

Economic Factors Weigh on Gold’s Outlook

Gold faces additional challenges from a strengthening US dollar, which makes the metal more expensive for foreign buyers. Federal Reserve officials are closely monitoring inflation, with some suggesting further rate hikes could be considered if inflation remains above target. This has dampened expectations for rate cuts, which typically benefit gold by reducing the value of the dollar.

Meanwhile, traders are closely watching upcoming US economic data, including the February Nonfarm Payrolls (NFP) report, which is expected to show job creation of around 59,000. January’s reading of 130,000 was well above expectations. Retail Sales are also under scrutiny, with forecasts of a 0.3% decline in January following a flat reading in December.

Adding to the economic uncertainty, the US is set to implement a temporary 15% global tariff this week, replacing the 10% rate introduced after the Supreme Court struck down most of the earlier levies under former President Donald Trump. Scott Bessent, the US Treasury Undersecretary for Domestic Finance, said the tariff could revert to previous levels within five months as new trade investigations progress.

Technical Outlook for Gold Remains Mixed

At the time of writing, gold is trading around $5,130 per ounce. Technical analysis of the daily chart suggests a mildly bullish bias, with the price remaining within an ascending channel pattern. The 50-day Exponential Moving Average (EMA) continues to provide support, and the 14-day Relative Strength Index (RSI) at 53 indicates underlying buying pressure remains intact.

The XAU/USD pair is currently testing the nine-day EMA at $5,140. A break above this level could push the price toward the upper boundary of the ascending channel at $5,480, with the potential to reach the all-time high of $5,598, set on January 29. On the downside, the immediate support is at the lower boundary of the channel at $5,080. A break below this level would expose the 50-day EMA at $4,883.

Gold’s performance this week highlights the delicate balance between geopolitical risks and economic fundamentals. While the metal benefits from safe-haven demand amid rising tensions, the strengthening dollar and inflation concerns are creating headwinds. Investors are closely watching both the Middle East conflict and upcoming economic data to gauge the direction of gold prices.