Gold prices extended their gains for a fourth straight session during Asian trading on Thursday as investors looked ahead to Friday's closely watched United States nonfarm payrolls report for further clues on the Federal Reserve's interest rate outlook.
By 3:50 pm AEST (5:50 am GMT), spot gold was up 0.4% at US$4,262.93 an ounce.
The precious metal built on Wednesday's 4.2% rally as optimism surrounding a potential U.S.-Iran peace agreement and the reopening of the Strait of Hormuz boosted market sentiment.
Iran said on Wednesday it was in the final stages of drafting an agreement with Oman over the strategic waterway, a move that could help bring an end to the five-month conflict between the United States and Iran.
Easing concerns over supply disruptions helped temper inflation expectations, prompting traders to scale back bets on a more aggressive tightening cycle from the U.S. Federal Reserve.
On the economic front, Automatic Data Processing (ADP) reported that U.S. private sector employment increased by 40,000 jobs in July, slowing from 95,000 in June and falling short of market expectations.
Meanwhile, the Institute for Supply Management said its Services PMI edged up to 54.1 in July from 54.0 in June but came in below economists' forecasts of 54.5.
Following the softer economic data, the probability of a September Federal Reserve interest rate hike fell to 54.8%, down from 63.4% a week ago, according to the CME Group FedWatch Tool.
Despite the shift in market expectations, several Federal Reserve officials have continued to warn that inflation risks remain elevated.
Fed Governor Lisa Cook said inflation remains "stubbornly high" and indicated she would support further interest rate increases if progress on disinflation stalls, warning the central bank could not afford to wait indefinitely if price pressures persist.
Even so, markets continue to price in around an 80% probability that the Federal Reserve will raise interest rates before the end of the year amid ongoing inflation risks linked to supply disruptions through the Red Sea.
Attention now turns to Friday's nonfarm payrolls report, which is expected to provide the next major test for interest rate expectations.
Before then, investors will monitor Thursday's weekly U.S. initial jobless claims data, along with comments from Federal Open Market Committee members, for further direction on the U.S. dollar and monetary policy.
