Gold prices pulled back sharply on Friday as the U.S. dollar recovered from its steepest one-day drop in over two years, yet the precious metal remains on course to break a four-month losing streak. Spot gold traded down 1.8% at $4,027.75 per ounce by 09:59 a.m. EDT (1359 GMT), after touching a 2% decline earlier in the session. August-dated U.S. gold futures fell 1.9% to $4,025.10. Main Developments Friday's slide follows a notable rally that pushed bullion to a 0.5% monthly gain, marking its strongest performance since February. The dollar advanced 0.5% after plunging about 2.4% on Thursday, its largest single-day drop since January 2023, making gold more expensive for buyers using other currencies. Read also: UAE Stocks Rally on Strong Earnings, Abu Dhabi Leads Softer U.S. inflation data released Thursday has been the primary catalyst behind gold's recent ascent. The easing price pressures prompted traders to reduce their expectations for Federal Reserve rate hikes this year, while oil prices retreating to pre-Iran war levels earlier this month added further support to the metal. Background The metal has struggled to establish a clear foothold above the psychologically important $4,000 level, according to Han Tan, chief market analyst at Bybit. Fed Chair Kevin Warsh's pledge this week to maintain unwavering commitment to lowering inflation, without signaling readiness to raise rates, has helped keep gold supported above that threshold. Thursday's inflation report showed U.S. price growth slowed in June, though analysts cautioned the easing may prove temporary given renewed Middle East hostilities that have lifted oil prices. Market sentiment shifted accordingly, with traders now pricing a 65% chance of a September rate hike, down from more than 80% just a week earlier, according to the CME FedWatch Tool. Why It Matters Beyond gold, the broader precious metals complex felt the dollar's rebound. Spot silver fell 2.9% to $57.29 per ounce, while platinum slipped 2.5% to $1,618.97 and palladium dropped 3.4% to $1,260, though both platinum group metals remain set for monthly gains. Silver's decline carries additional significance given its industrial role in solar photovoltaic panels. China's market regulator on Friday urged solar companies to resist "vicious" price competition during a compliance guidance meeting, a development that could influence future industrial demand for the metal. What's Next Investors will be watching whether gold can maintain its position above $4,000 as trading resumes next week. The trajectory of Middle East tensions and their effect on oil prices will likely play a determining role in whether Thursday's inflation slowdown proves durable or merely a temporary reprieve. Market participants will also parse any further communications from Fed officials, particularly regarding Warsh's monetary policy stance, as they reassess the likelihood of rate action in September.