Gold prices were trading slightly lower during Friday's Asian session but remained above the key US$4,100 level as easing tensions in the Middle East tempered demand for traditional safe-haven assets.
By 3:50 pm AEST (5:50 am GMT), spot gold was down 0.2% at US$4,113.98 an ounce.
Despite stabilising on Friday, the precious metal remained on track to post a weekly decline of around 1.5%, as renewed inflation concerns and higher oil prices reduced expectations for near-term interest rate cuts.
Earlier in the week, escalating hostilities between the United States and Iran pushed crude oil prices to two-week highs, fuelling concerns that higher energy costs could keep inflation elevated for longer.
However, sentiment improved after a U.S. official said Washington remained committed to pursuing a diplomatic resolution with Tehran.
"the United States is still committed to finding a resolution, and technical talks continue,"
The comments eased some geopolitical concerns, reducing demand for the U.S. dollar as a safe-haven asset and helping limit losses in bullion.
The U.S. dollar also came under additional pressure as the Japanese yen strengthened sharply following announcements of fiscal and financial reforms by Japanese authorities, sending the USD/JPY exchange rate lower.
A weaker greenback generally supports gold by making the precious metal cheaper for holders of other currencies.
With few major economic releases scheduled before next week, traders are expected to look to broader market sentiment and developments in the Middle East for direction.
Investor focus will then shift to next Tuesday's U.S. consumer price index (CPI) report, which could provide fresh clues on the Federal Reserve's interest rate outlook following Wednesday's less-hawkish June meeting minutes.
