Bullion has been trading lower since the start of the week as tensions continue to rise in the Middle East, dampening hopes of a US-Iran peace deal and upbeat US economic data continuing to reinforce expectations that interest rates will remain high.
At 9.20am, gold prices were trading at $4,467, up 0.77% since they opened early Thursday in Asian trading.
Tensions in the Middle East rose again on Wednesday as fresh fighting broke out between several parties in the region, the most serious incident since a ceasefire came into effect in April.
Kuwait and Bahrain were also dragged into the conflict, raising concerns that peace efforts between the United States (US) and Iran are at risk of failure.
Although Washington and Tehran have reached a basic agreement to extend the ceasefire and reopen the Strait of Hormuz, talks to finalize the deal remain deadlocked.
Iran reportedly refused to accept some of the US's conditions, thus delaying the conflict resolution process.
The ongoing disruption of the world's main energy route through the Strait of Hormuz has pushed up oil prices and raised concerns about global inflation. This situation has led central banks to maintain or raise interest rates to control price pressures.
Market expectations now indicate that the Federal Reserve (Fed) is likely to maintain the current interest rate throughout this year. In fact, there is about a 40% probability that the Fed will implement a rate hike of 25 basis points at its December meeting.
A high interest rate environment usually reduces the attractiveness of gold because the precious metal does not offer interest returns.
At the same time, expectations of tighter monetary policy have also strengthened the US Dollar and increased Treasury bond yields, thus putting additional pressure on gold prices.
