Spot gold prices were little changed in early US trading Friday, holding near levels reached after Thursday’s steep losses.

Spot gold was trading at $4020 an ounce, down 0.1% but silver declined sharply, trading at $54 with the day’s loss of just over 1%.

Renewed tensions in the Middle East have driven oil prices higher, adding to inflation concerns and strengthening expectations that the Federal Reserve will keep monetary policy restrictive.

Gold has struggled to draw sustained safe-haven buying despite rising geopolitical risks and weakness in global equities.

Silver has come under additional pressure, with investors weighing the potential impact of high borrowing costs and rising energy prices on industrial activity.

Market sentiment remains shaped by persistent inflation risks and expectations for further monetary tightening.

Interest rate futures suggest the Fed is widely expected to leave rates unchanged at its October 27-28 meeting, while traders continue to price in about a 78% probability of at least one additional rate increase by December.

Firm rate expectations, higher crude prices and continued selling pressure have made it difficult for bullion to benefit from geopolitical uncertainty, even during periods of easing bond yields.

Middle East tensions put gold and silver under pressure

The latest escalation in the Middle East has renewed concerns over the security of energy shipments through the Persian Gulf, despite producers’ efforts to redirect supplies through alternative infrastructure.

Brent crude briefly approached $115 a barrel, its highest level in roughly five months, while West Texas Intermediate rose above $100.

For gold, the conflict has created competing forces.

The risk of further military confrontation and interruptions to energy supplies can support demand for defensive assets. However, higher oil prices also threaten to keep inflation elevated, potentially giving the Fed reason to maintain tighter monetary conditions for longer.

That tension has muted gold’s traditional safe-haven response.

Some investors have instead directed defensive flows toward US government bonds, while rising yields have added to the pressure on non-yielding bullion.

Silver has faced heavier selling as investors consider whether expensive energy and restrictive monetary policy could weigh on manufacturing and industrial demand.

UBS identifies $4,000 as a key support level

Despite the pressure from higher yields, UBS strategist Giovanni Staunovo said gold had shown resilience.

“Still, we think gold has proved notably resilient to the sharp rise in yields,” Staunovo wrote.

UBS expects the metal could face another test of the $4,000-an-ounce level in the near term, with longer-term buyers potentially stepping in if prices retreat further.

“In the near term, gold may retest support around USD 4,000/oz, where we expect structural dip buyers to establish a floor,” the strategist said.

“Overall, we believe the long-term investment case for gold remains positive,” Staunovo added. “In our view, price pullbacks toward USD 4,000/oz offer opportunities to add exposure.”

UBS’s longer-term outlook is supported by several structural factors, including central banks diversifying their reserves, concerns about rising public debt and debt-servicing costs, expectations for a weaker US dollar over time, and continued strong buying from China.

The bank continues to expect annual central bank gold purchases of between 750 and 1,000 metric tons, a source of underlying demand that could help cushion the market during periods of short-term volatility.

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