Gold prices edged higher on Friday as the dollar ‌softened, but were on track for a weekly decline on concerns that escalating U.S.-Iran tensions could fuel ​inflation and keep the U.S. Federal Reserve on a hawkish monetary policy path.

Spot gold was up 0.2% at $4,128.92 ​per ounce, ​as of 0303 GMT, and headed for an over 1% weekly fall. U.S. gold futures for August delivery were steady at $4,139.50.

The dollar was at a one-week low, ⁠making greenback-priced bullion more affordable for holders of other currencies.

"Gold is in consolidation mode today following yesterday's gains, with traders hesitant to commit to further upside amid the prevailing uncertainty over US-Iran relations," said Tim Waterer, chief market analyst at KCM Trade.

Oil prices were on ​track for a ‌weekly gain, as ⁠U.S. and Iran continued ⁠to trade strikes, with Iranian armed forces launching attacks on U.S. military infrastructure in Gulf states ​on Thursday following U.S. strikes on Iran's southern coastal and eastern provinces.

The ‌latest round of strikes has fuelled inflation concerns and reinforced ⁠the probability of the U.S. Federal Reserve raising interest rates this year. Markets are pricing in a 64% chance of a September rake hike from around 54% a week before, according to CME's FedWatch tool.

While gold is typically seen as a hedge against inflation, it loses its appeal as a non-yielding asset in a high-interest-rate environment.

"I expect gold will continue to attract buyers on dips as long as oil stays around current levels. However, any sharp spike in oil could reignite inflation and interest rate fears, which would ‌be to gold's detriment," Waterer added.

Minutes from the Fed's June ⁠meeting, released earlier this week, showed growing concerns among policymakers ​about elevated inflation. 

HSBC cut its average gold price forecasts for 2026 and 2027 on Thursday, citing a hawkish shift in U.S. monetary policy expectations and a stronger dollar.

Elsewhere, spot silver rose 0.8% ​to $60.46 per ounce, platinum ‌gained 1.6% to $1,636.68 and palladium added 1.6% to $1,267. All three metals ⁠were on track for a weekly loss.

(Reporting ​by Pablo Sinha and Swati Verma in Bengaluru; Editing by Sherry Jacob-Phillips)