Gold prices fell on Friday and remained on track for a significant weekly decline as investors weighed rising inflation concerns and the possibility of further U.S. Federal Reserve interest rate hikes. The precious metal has come under pressure in recent weeks as traders reassess the outlook for monetary policy and global economic conditions.

Spot gold dropped 0.5% to $4,193.58 per ounce and was headed for a weekly loss of more than 3%. Although U.S. gold futures for August delivery posted gains during Friday's session, sentiment across the broader gold market remained cautious.

Gold prices experienced sharp volatility throughout the week. On Thursday, the metal fell to its lowest level in more than six months before recovering some losses after U.S. President Donald Trump announced that planned military strikes on Iran had been cancelled and suggested that a peace agreement could be reached soon.

Market analysts said geopolitical developments continue to play a major role in determining gold's direction. However, expectations surrounding Federal Reserve policy are increasingly becoming the dominant factor for investors.

According to Edward Meir, an analyst at Marex, markets are closely watching for any indication that the Federal Reserve could raise interest rates. Higher interest rates typically reduce the appeal of non-yielding assets such as gold by increasing the returns available from interest-bearing investments.

Gold has declined roughly 20% since the start of the Iran conflict. Investors have become concerned that higher energy prices resulting from Middle East tensions could fuel inflation, forcing central banks to maintain tighter monetary policies for longer than expected.

Recent U.S. economic data added to those concerns. Producer prices rose more than expected in May, marking the largest annual increase in three and a half years. Rising energy costs linked to the Middle East conflict were a key contributor to the increase, strengthening the argument for higher interest rates.

Market expectations have shifted accordingly. Traders are now pricing in a 60% probability that the Federal Reserve could implement a rate hike in December, reflecting growing concerns that inflation may remain elevated.

Meanwhile, developments surrounding Iran continue to influence investor sentiment. President Trump stated that the United States and Iran could reach a peace agreement as early as this weekend, potentially leading to the reopening of the Strait of Hormuz, a critical global energy shipping route. However, Iranian officials indicated that no final decision on an agreement has been made.

Investment demand for gold also showed signs of weakening. Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, declined by approximately 0.3% to 923.89 metric tons, suggesting some investors are reducing exposure to the metal.

Reflecting the changing market environment, ANZ revised its year-end gold price forecast lower by $400 to $5,200 per ounce, citing increased volatility and shifting investor expectations.

Other precious metals also experienced mixed performance. Silver fell 0.5% to $67.03 per ounce, while platinum gained 0.7% to $1,731.41. Palladium outperformed the sector, rising 1.8% to $1,292.20 and posting a weekly gain of about 5%.

Investors will continue to monitor inflation data, Federal Reserve commentary, and developments in the Middle East, all of which are expected to play a crucial role in determining gold's next major move.