Gold traded slightly higher during Asian trading on Thursday as renewed tensions in the Middle East fuelled inflation concerns and prompted investors to reassess expectations for U.S. interest rates.
By 4:10 pm AEST (6:10 am GMT), spot gold was up 0.4% at US$4,092.17 per ounce.
The precious metal has remained under pressure as escalating hostilities between the United States and Iran have revived fears of higher global inflation. Persistent price pressures could discourage major central banks from easing monetary policy, supporting interest-bearing assets while reducing the appeal of non-yielding assets such as gold.
According to the CME Group FedWatch Tool, the probability that the Federal Reserve leaves interest rates unchanged this year were at 15.8%, down from 19.4% on Tuesday, as traders increasingly priced in the risk of higher inflation.
Investor sentiment was also weighed by renewed military action in the Middle East. On Wednesday, U.S. Central Command announced fresh strikes on Iran aimed at keeping the Strait of Hormuz, a vital shipping route for nearly 20% of global energy supplies, open to commercial traffic.
The strikes followed comments from President Donald Trump declaring that the memorandum of understanding signed with Iran to end the conflict was "over", raising concerns that the conflict could become more prolonged.
Attention is now turning to upcoming U.S. economic data for signs of whether inflationary pressures are accelerating further, which could influence the Federal Reserve's policy outlook.
Minutes from the Federal Open Market Committee's June meeting, released on Wednesday, reinforced the central bank's cautious stance, showing policymakers continued to view "inflation as the dominant risk", with several officials indicating that further monetary tightening could still become necessary.
