Gold prices reversed earlier gains to trade lower during Monday's Asian session as renewed demand for the United States dollar offset support from ongoing geopolitical uncertainty in the Middle East.
By 3:40 pm AEST (5:40 am GMT), spot gold had fallen 0.4% to US$4,157.28 an ounce after earlier touching 10-day highs of $4,202.73, its highest level in 10 days.
The precious metal had rebounded from a seven-month low of $3,941.75 reached last Tuesday, but the recovery lost momentum as investors shifted back towards the U.S. dollar amid fresh uncertainty surrounding shipping through the Strait of Hormuz and negotiations between the United States and Iran.
The increased uncertainty follows reports that Iran's ambassador to China, Abdolreza Rahmani Fazli, confirmed that Tehran intends to introduce new service fees for vessels transiting the Strait of Hormuz, while assuring that "friendly" nations would receive special treatment.
Meanwhile, Iranian Parliament Speaker Mohammad Bagher Ghalibaf said Tehran would not enter negotiations with the United States on a final peace agreement until all provisions of the memorandum of understanding had been implemented, including an end to hostilities in Lebanon and the release of frozen Iranian assets.
The U.S. dollar also found support from renewed weakness in the Japanese yen, pushing the USD/JPY exchange rate higher despite continued speculation that Japanese authorities could intervene to support their currency.
Investors are also reassessing the outlook for U.S. monetary policy after last week's weaker-than-expected employment data reduced expectations that the Federal Reserve will raise interest rates in September.
The June U.S. nonfarm payrolls report showed the economy added 57,000 jobs, well below forecasts for an increase of 110,000.
The labour force participation rate also fell to 61.5%, its lowest level in more than five years, reinforcing expectations of a softer U.S. labour market.
According to the CME Group FedWatch Tool, markets are now pricing in a 54.4% chance of a rate hike in September, down from 62% a week ago.
