Gold prices recovered during Tuesday's Asian session after falling to their lowest level in three months, supported by a modest pullback in the United States dollar as investors reassessed geopolitical risks and prepared for key U.S. inflation data.
By 3:50 pm AEST (5:50 am GMT), spot gold was trading 0.3% higher at US$4,343.56 per ounce after earlier rebounding from a session low of $4,267.95 yesterday.
The precious metal regained ground as the U.S. dollar eased 0.2% from near two-month highs against major currencies, helping to improve demand for dollar-denominated commodities.
Market participants attributed part of the dollar's retreat to lingering uncertainty surrounding the fragile ceasefire between Iran and Israel.
The two countries said they had halted attacks on each other following an appeal from U.S. President Donald Trump.
However, tensions remain elevated after Tehran warned it could resume strikes if Israel continued military operations against the Iran-backed Hezbollah movement in Lebanon.
Meanwhile, investor sentiment toward gold has been dampened by growing expectations that the Federal Reserve may raise interest rates before the end of the year as inflation remains above the central bank's target.
According to the CME Group FedWatch Tool, markets are pricing a 71.3% probability of a rate increase by December.
Higher interest rates generally weigh on gold because the metal does not generate income, making interest-bearing assets more attractive to investors.
The prospect of tighter monetary policy has also supported the broader U.S. dollar outlook, limiting the scope for a sustained recovery in gold prices.
Attention is now turning to the release of the U.S. consumer price index (CPI), a key inflation report that could influence expectations for future Federal Reserve policy decisions.
Some investors may choose to take profits on long U.S. dollar positions ahead of the data release, which could provide additional short-term support for gold.
A softer-than-expected inflation reading could ease pressure on the Federal Reserve to tighten policy further and potentially strengthen demand for bullion.
However, a stronger inflation result would likely reinforce expectations of higher interest rates, boosting the US dollar and creating renewed headwinds for gold.
Geopolitical developments also remain a critical factor. While the current pause in hostilities between Iran and Israel has reduced immediate safe-haven demand, any renewed military escalation could quickly alter market sentiment.