Gold prices experienced a notable decline on Friday, setting the metal on track for a weekly fall. This downward trend was primarily attributed to an overall stronger U.S. dollar and the diminishing prospects of significant U.S. interest rate cuts. These factors outweighed the traditional safe-haven appeal of gold, which typically benefits from rising geopolitical tensions, particularly those escalating in the Middle East.

As of 0245 GMT, spot gold had slipped by 0.5% to $3,355.49 an ounce, reflecting a 2.2% decrease for the week so far. U.S. gold futures also saw a significant drop, shedding 1% to reach $3,371.80. Market analysts noted that the fluid situation in the Middle East was causing traders to adopt a cautious stance, refraining from aggressive long or short positions in the gold market.

The conflict in the Middle East intensified with reports of Israel bombing Iran's nuclear sites and Iran retaliating with missile and drone strikes on Israel, including an attack on an Israeli hospital. Neither side has indicated a clear exit strategy, further contributing to regional instability. Adding to the geopolitical complexity, the White House announced that President Donald Trump would decide within the next two weeks whether the U.S. would intervene in the Israel-Iran air war, increasing pressure on Tehran for negotiations.

Domestically, macroeconomic developments in the U.S. also played a critical role in gold's performance. The Federal Reserve had held interest rates steady on Wednesday, with policymakers retaining projections for only two quarter-point rate cuts this year. This cautious stance by the Fed, coupled with rising inflation expectations, has tempered market expectations regarding the number of rate cuts. President Trump, however, reiterated his calls for the Federal Reserve to cut interest rates, suggesting they should be 2.5 percentage points lower.

The U.S. dollar was poised to record its largest weekly increase in over a month on Friday. A strengthening greenback makes dollar-denominated assets like gold more expensive for holders of other currencies, thereby reducing demand. In the broader precious metals market, spot silver fell 1.6% to $35.82 per ounce, while palladium decreased by 0.7% to $1,042.92. Platinum, despite a 1.5% fall to $1,287.47, was still heading for its third consecutive weekly rise.