Gold rises but heads for weekly loss on inflation and rate hike worries

Gold ticked up on Friday, but was set for a weekly decline as U.S.-Iran tensions pushed oil prices higher, raising inflation concerns and supporting an outlook for higher U.S. interest rates.

Spot gold XAU= rose 0.7% to $3,996.29 per ounce by 1010 GMT, after touching its lowest since July 1 earlier in the day. Prices were down over 3% so far for the week.

U.S. gold futures GCcv1 for August delivery gained 0.2% to $4,000.00.

"When prices go down there, there's bound to be some short sellers who take profit," said Fawad Razaqzada, a market analyst at Forex.com.

"If oil were to go higher, it will continue to weigh on gold because that will boost inflation expectations, which in turn means that interest rates will be higher and people would be attracted to buying bonds instead," Razaqzada added.

Expectations of higher interest rates dent gold's appeal as it is a non-yielding asset.

Iran said it launched fresh strikes on U.S. facilities in the Middle East on Friday, after a sixth straight night of Washington's strikes on Iranian military facilities limiting traffic through the Strait of Hormuz. Oil prices headed for a weekly gain.

On Thursday, Dallas Federal Reserve President Lorie Logan became the first of Fed Chairman Kevin Warsh's new colleagues to publicly call for an interest rate hike.

Meanwhile Fed Vice Chair Philip Jefferson suggested he would be open to raising rates if there was no near-term improvement in inflation.