Gold prices recovered during Thursday's Asian trade, rebounding from weekly lows as improving sentiment surrounding the Middle East conflict weighed on the United States dollar and encouraged buying in the precious metal.
By 3:40 pm AEST (5:40 am GMT), spot gold was trading 0.9% higher at US$4,473.69 an ounce, recovering from weekly lows of $4,423.53.
The recovery came as renewed optimism surrounding geopolitical developments reduced demand for the U.S. dollar and helped support precious metals.
Investors welcomed signs of progress on the diplomatic front after Israel and Lebanon agreed to implement a ceasefire.
In a joint statement, the United States, Israel and Lebanon said the ceasefire “is contingent on a complete cessation of Hezbollah fire and the evacuation of all Hezbollah operatives” from areas south of the Litani River.
The agreement offered some relief to markets after hostilities escalated earlier this week across the Gulf region, raising concerns about broader instability and potential disruptions to global energy supplies.
Despite the improvement in sentiment, traders remained cautious amid continued uncertainty over negotiations between Washington and Tehran and the future reopening of the Strait of Hormuz.
Iranian Foreign Minister Abbas Araqchi said late Wednesday that “no tangible progress” had been made in discussions aimed at ending the conflict.
The lingering uncertainty helped limit downside pressure on the U.S. dollar, which in turn capped gold's gains.
The greenback also continued to draw support from a series of stronger-than-expected U.S. economic reports that reinforced expectations the Federal Reserve could tighten monetary policy again before the end of the year.
Data from payroll processor ADP showed the U.S. private sector added 122,000 jobs in May, exceeding expectations for 117,000 and improving from April's revised gain of 105,000 jobs.
Meanwhile, the Institute for Supply Management (ISM) reported that its services purchasing managers' index (PMI) rose to 54.5 in May from 53.6 in April, surpassing forecasts for a reading of 53.8 and indicating continued expansion across the services sector.
The stronger economic data has led investors to reassess the outlook for U.S. interest rates.
According to the CME FedWatch Tool, markets are currently pricing in a 41.2% probability of a 25 basis point (bps) interest rate increase by year-end, alongside a 13.7% chance of a larger 50bp hike.
Attention is now turning to Friday's U.S. nonfarm payrolls report, which is expected to provide further insight into labour market conditions and the Federal Reserve's policy outlook.
