Gold prices rebounded on Thursday after being hit hard to their lowest in more than six months, as investors returned to seeking safe haven assets amid geopolitical uncertainty and the direction of US interest rates.
The precious metal also found support after the US dollar weakened and crude oil prices plunged from their previous highs.
In Asian trading, spot gold prices rose around 2% and returned to near $4,150 an ounce after previously hitting a six-month low.
Gold's rise came after US President Donald Trump called off a proposed new attack on Iran and hinted that a peace deal might be reached in the near future.
Previously, the market was plagued by concerns that the Middle East conflict would continue to fuel global oil prices and increase inflationary pressures worldwide. Canadian job market
However, sentiment has changed as hopes for a diplomatic solution have begun to emerge, causing oil prices to fall and easing concerns about a more aggressive inflationary surge.
However, gold's rise still faces significant challenges.
Investors remain wary of the possibility that the Federal Reserve (Fed) will keep interest rates high for longer as inflationary pressures in the US have yet to fully subside.
Consumer and producer inflation data released this week showed price pressures remain high, particularly due to rising energy costs stemming from the Middle East conflict.
The situation has revived speculation that the Fed may not be in a hurry to cut interest rates, with some markets even starting to see the possibility of a rate hike by the end of the year.
A high interest rate environment is typically negative for gold as the precious metal does not offer the same returns as bonds and other fixed income instruments.
At the same time, investors are also keeping an eye on the latest developments in the negotiations involving Iran after Tehran has yet to confirm any formal agreement with Washington.
Now the market's attention will be focused on next week's Fed meeting as well as any new developments in the Middle East which are expected to be the main catalyst for gold's direction in the near term.
