Gold resumed its decline during Asian trading on Friday, falling back below the UD$4,200 level after a recovery in the previous session as investors reassessed the prospects of a peace agreement between the United States and Iran.
By 4:00 pm AEST (6:00 am GMT), spot gold prices were down 0.7% at $4,182.00 per ounce.
The precious metal had rebounded from year-to-date lows on Thursday after U.S. President Donald Trump cancelled planned strikes against Iran and suggested a peace agreement could soon be reached.
However, renewed uncertainty surrounding negotiations and continuing tensions in the Strait of Hormuz helped revive demand for the U.S. dollar, weighing on gold prices.
According to reporting from Reuters, Trump said an agreement with Iran could be signed “maybe over the weekend in Europe” and added that the Strait of Hormuz would reopen “as soon as we sign” the documents relating to what he described as a “great settlement”.
However, optimism surrounding a diplomatic breakthrough faded after a spokesperson for Iran's Foreign Ministry stated that Tehran had not yet made a final decision regarding any agreement with Washington.
The conflicting signals from regional stakeholders dampened enthusiasm for safe-haven assets such as gold while simultaneously supporting the U.S. dollar, which benefited from its status as a defensive currency amid geopolitical uncertainty.
Gold also remained under pressure from stronger-than-expected U.S. inflation data released this week.
The latest inflation readings reinforced expectations that the Federal Reserve could maintain a restrictive monetary policy stance for longer. Market pricing monitored through the CME Group FedWatch Tool indicates investors increasingly expect a 25-basis-point interest rate increase in December.
Higher interest rates generally weigh on non-yielding assets such as gold by increasing the opportunity cost of holding bullion relative to interest-bearing investments.
Investors are now focused on the preliminary June readings of the University of Michigan Consumer Sentiment Index and Inflation Expectations survey due later on Friday (Saturday AEST).
The data will be closely watched for fresh clues on consumer confidence and inflation trends, both of which have the potential to influence expectations for Federal Reserve policy and movements in the U.S. dollar.
Market participants are also expected to remain highly sensitive to developments in the Middle East, particularly any announcements regarding negotiations between Washington and Tehran or changes to shipping conditions in the Strait of Hormuz.
Looking ahead, attention is also beginning to shift toward next week's Federal Reserve policy meeting, the first to be chaired by Kevin Warsh.
