Gold prices moved higher during Monday's Asian trading session, recovering after posting a 1.2% decline last week as investors assessed positive developments following United States-Iran talks in Switzerland.
By 3:40 pm AEST (5:40 am GMT), spot gold was trading 0.8% higher at US$4,194.26 an ounce.
The advance came after the State of Qatar and the Islamic Republic of Pakistan reported progress in talks held in Switzerland, raising hopes that a broader agreement could be reached within the next two months.
Following the discussions, negotiators released a statement outlining a framework for further engagement and efforts to reduce regional tensions.
"The High Level Committee has agreed upon a roadmap towards reaching a final deal within 60 days, laying the foundation for the immediate commencement of further technical talks. In addition, a communication line between the parties has been formed for the period mentioned in paragraph 5 of the MoU to avoid incidents and miscommunication with the aim of safe passage for commercial vessels through the Strait of Hormuz.
Moreover, the parties agreed on the creation of a de-confliction cell, between the parties, the Lebanese Republic and facilitated by the Mediators, to ensure the adherence of the termination of military operations in Lebanon as per the MoU. Technical talks will continue for the remainder of the week at the Burgenstock resort on all issues."
The agreement marked a further step in efforts to preserve a fragile ceasefire and maintain the flow of commercial shipping through the Strait of Hormuz, a critical route for global energy supplies.
Despite Monday's gains, gold continues to face pressure from the U.S. Federal Reserve's increasingly hawkish stance on monetary policy.
Higher interest rates generally weigh on non-yielding assets such as gold by increasing the attractiveness of interest-bearing investments and supporting the U.S. dollar.
Last Wednesday, the Federal Reserve left its benchmark interest rate unchanged at between 3.5% and 3.75%, in line with market expectations.
However, policymakers signalled a tougher outlook for inflation through their updated Summary of Economic Projections.
The latest "dot plot" showed a notable shift towards tighter policy, with nine Federal Reserve officials now forecasting at least one additional interest rate increase before the end of the year.
The prospect of higher borrowing costs has strengthened the U.S. dollar and tempered demand for gold, limiting the metal's upside despite ongoing geopolitical uncertainty.
Market participants are now awaiting further technical discussions between U.S. and Iranian officials, as well as upcoming U.S. economic data, for additional clues on the direction of both monetary policy and safe-haven demand.