Gold prices held above the key US$4,000 an ounce level during Asian trade on Thursday as investors awaited the closely watched United States Nonfarm Payrolls report, with a slightly weaker U.S. dollar providing some support for the precious metal.
By 3:25 pm AEST (5:25 am GMT), spot gold was up 0.7% at US$4,059.97 an ounce.
The metal extended its recovery after the U.S. dollar retreated overnight, following weaker-than-expected U.S. manufacturing data and comments from Federal Reserve Chair Kevin Warsh that were viewed as less hawkish than markets had anticipated.
The Institute for Supply Management's Manufacturing PMI came in at 53.3 for June, below market expectations of 54, while Warsh said he had been encouraged by the recent easing in inflation expectations and reaffirmed the central bank's commitment to price stability.
Warsh also said the Federal Reserve would "chart a new course" while continuing to avoid providing forward guidance, reinforcing expectations that future policy decisions will remain dependent on incoming economic data.
He reiterated that inflation above the central bank's 2% target would be disappointing and highlighted artificial intelligence as a potentially significant, although still evolving, influence on future inflation.
The softer U.S. dollar and lower short-term Treasury yields improved the appeal of non-yielding assets such as gold, helping prices recover from recent weakness.
Investor sentiment also received support from renewed optimism surrounding indirect peace talks between the United States and Iran.
Qatar said late on Wednesday that meetings in Doha between U.S. and Iranian negotiators, conducted through mediators, had made "positive progress" on issues related to the memorandum of understanding, with both sides agreeing to continue discussions.
Despite the rebound, traders remained cautious ahead of the U.S. labour market report, which is expected to play a significant role in shaping expectations for Federal Reserve policy.
Markets are currently pricing in a 65.9% probability of a Federal Reserve interest rate hike in September, according to the CME Group FedWatch Tool, with expectations for two additional rate increases before the end of the year.
Meanwhile, the employment report is scheduled for release on Thursday (Friday AEST), ahead of the U.S. Independence Day holiday.
Economists expect the U.S. economy added 110,000 jobs in June, following an increase of 172,000 in May, while the unemployment rate is forecast to remain unchanged at 4.3%.
