Spot gold was up 0.6% at $4,271.33 per ounce by 0843 GMT, after earlier hitting its highest level since June 18. On Wednesday, bullion posted its biggest daily gain since February, climbing as much as $4,267.24 per ounce.
U.S. gold futures rose 0.6% to $4,330.20.
“Gold tries to hold onto its recent gains today amid growing optimism around the Strait of Hormuz. Hopes for a diplomatic breakthrough that restores oil flows are easing inflationary fears and paring back aggressive Fed tightening bets,” said Nikos Tzabouras, senior market analyst at Jefferies-owned Tradu.com.
A proposed deal between Iran and Oman to help end five months of war between Iran and the United States would give Tehran control over ships entering the Gulf through the Strait of Hormuz, a senior Iranian source and two regional officials told Reuters.
Market expectations for a September U.S. rate hike have eased to 55% from 67% two days earlier.
While gold is typically seen as a hedge against inflation, it loses its appeal as a non-yielding asset in high-interest-rate environments.
Federal Reserve Bank of San Francisco President Mary Daly said she was “completely supportive” of the decision last week to hold interest rates steady as the central bank gathers more data about how it should respond to inflation that is well above its 2% target.
Investors are awaiting the July U.S. nonfarm payrolls report scheduled for release on Friday. The ADP national employment report showed that U.S. private payrolls growth slowed in July.
“Gold remains vulnerable to renewed pressure and fresh 2026 lows. With lingering price pressures keeping rate-hike dissenters active and geopolitical risks finely balanced, any diplomatic setback could quickly resurrect those downside dynamics,” Tzabouras added.