Gold edges higher as oil prices retreat from six-week highs

Gold prices moved higher on Friday, recovering from earlier losses as oil prices pulled back, with investors watching developments in the Middle East for signals on inflation risk and the direction of U.S. interest rates.

Spot gold gained 0.4% to trade at $4,061.36 per ounce by 1115 GMT, after having fallen around 0.6% earlier in the session. U.S. gold futures for August delivery rose 0.3% to $4,063.60.

According to UBS analyst Giovanni Staunovo, gold turned positive as falling oil prices eased pressure on the Federal Reserve to raise rates. He said the bank's view remains that the Fed will hold rates steady, which should support gold prices in the coming months.

The pullback in gold followed a sharp rise in oil prices a day earlier. Brent crude jumped 7% on Thursday, closing above $100 a barrel for the first time since May, after Yemen's Houthi forces reported an attack on two Saudi oil tankers in the Red Sea. Prices eased back below that level on Friday.

Higher oil prices, driven by supply disruptions in the Gulf, have weighed on gold in recent sessions by raising expectations that interest rates could stay elevated for longer, a scenario that typically reduces demand for non-yielding assets like gold.

Markets are now focused on the U.S. Federal Reserve's policy meeting next week, where the central bank is widely expected to leave interest rates unchanged. According to the CME FedWatch Tool, traders are pricing in roughly an 80% probability of a rate cut in September.

The European Central Bank also held interest rates steady on Thursday, while signalling that a further increase in September remains possible.

Elsewhere, gold discounts in India widened to a seven-week high as demand stayed weak following an earlier price rebound that discouraged buyers. In China, the world's top gold consumer, buying interest showed signs of improvement.

Among other precious metals, spot silver rose 1.3% to $58.43 per ounce, platinum edged up 0.2% to $1,602.74, while palladium was little changed at $1,256.95.